A budget is your business’s Swiss Army Knife.
- It’s your financial planner – estimating your income and expenditure over a set period of time
- It’s your financial early warning system – identifying when your expenses are climbing or revenue is falling
- It’s your diagnostics tool – spotting opportunities for optimisation
Want in? Then let’s get into:
It’s as simple as planning the coming year based on your history of income and expenditure. From here, you can review each month’s performance against your historical results – spotting improvements and causes for concern.
So, you’ll have to think about the historical information you’re basing your budget on:
Are you starting out in business for the first time?
Then you’re unlikely to have past costs or sales to use as a baseline. You’ll need to do some research and figure out what your costs are likely to be, as well as likely sales figures. If you’re in this boat, it’s important not to give yourself arbitrary, hard-to-reach targets. You’ll likely feel disappointed if you don’t reach them.
Is the year ahead likely to be “business-as-usual”?
If so, you may be able to safely assume your income and expenses will safely mirror last year. You can use them to make estimations, while slightly increasing your costs to reflect inflation.
Do you have big changes on the way?
If you’re planning to introduce a new product line or shift your premises to a new location, your costs are certainly going to change, and maybe your income will, too. Factor in these new costs or income adjustments.
Your budget strictly focuses on your income and expenses – the factors impacting the profit you make. It doesn’t include all of the items going in and out of your bank account (that’s what a cash flow forecast is for). You can learn about cash-flows over here.
The below examples will help to clarify this:
- Any intentions to buy assets, like vehicles, in the coming year don’t make it into your budget
- Your GST payments don’t
- Repaying the principle on your loan doesn’t go in, but any interest repayments do.
If you’d like further clarity, just get in touch with your Beany accountant!
After building your budget, it’s helpful to enter it into a tool, like Xero. You can then track each month’s figures against your forecast.
In addition, you can use the Wealth section of our Beany app to see how your sales or net profit are tracking against your budget.
You can read all about how to set up a budget over here.
If you’d like any help with setting up a budget, check out Beany’s budgeting product, or give our support team a shout at [email protected] or 0800 755 333.