Fundamentals of Effective Small Business Budgeting
One vital role of your Brisbane accountant is to be your business guide and help with the business budgeting. Small business budgeting is the process of efficient allocation and use of company resources with the purpose of attaining the highest possible returns. This is a vital aspect of business planning and forecasting. Missed opportunities, sluggish cash flow, losses and even company collapse can result from misallocation of funds.
A small business budget includes the projected inflow and outflow of cash and other assets to and from the company. Asset inflow may include sales, A/R collections, and loan proceeds and donated assets. Items on the outflow of assets could include expenditures, repayments of loans, purchases and retirement of assets.
The goal of business budgeting is to keep the business as liquid as possible. Liquidity or the ability to pay liabilities as they come due and to buy the required purchases as they are needed is a huge business advantage.
Important Aspects of a Good Business Budget
Not all profits are expended
Keep aside a portion of the profit to cover incidentals and business opportunities. No business operation is without some degree of surprises. A machine can fail, a client doubles his order or rain can damage your stocks. Having sufficient money to cover these surprises can help your business keep up with the operations.
Sensible and Realistic
Budgets should be as factual as possible. If you sold 100,000 units last year, you shouldn’t set the sales figure to 500,000 for the next, unless you made some drastic business changes and expansion. Business expansions or marketing campaigns can bring in more sales, but always be on the side of prudence. Your Brisbane accountant will probably advise you not to expect a deluge of sales or improvement immediately right after change implementation.
The best resource and basis of your budgeting are your last cycle’s business reports. Your business operation will most likely go similarly. You can easily compare sales to expense ratios, sales trending, the list of expenses and a lot more. Also, reviewing previous reports will give you a better hindsight of what to expect, find ways to save money and resources and improve your business operations.
Complete and Simple
Include all aspects of the business. Missing out one vital item can render the budget irrelevant and erroneous. If you have opened another store, expect your expenditures to increase, not just the sales. Hiring a sales manager can boost your sales, but you also have to up your salary expenses. Keep your budget simple, yet complete. You don’t have to list all items, use one line for similar items like office utilities, office supplies and office rental.
Periodically revisit your budget and compare it with the actual figures. You may need to adjust the numbers as you go. It is no longer viable to follow the previously set numbers if you are presented with significant differences and changes. You can also have several versions of the budget. One that will reflect only the essential expenses and the others with discretionary expenses – expenditures that you can postpone like the acquisition of a new delivery truck, or cancel like a company midyear party blowout.
Small business budgeting can be a very complex process especially to those who are not financially attuned. Call us for a detailed and better discussion on profits, income, and cash flow. Our seasoned Brisbane accountants can help you prepare business budgets, forecast, and help improve your company’s profitability.