Creating a budget is a great tool to forecast, plan, and manage income and expenditure for a business. The profit and loss report should be your best friend, so that you can see exactly what is happening within your business and understand how monies are being spent and from where income is streaming in. A budget will enable you to forecast and plan ahead so that you can allocate monies to various items or general lodger accounts to ensure you are not over-spending in certain areas.
It’s important to be able to sleep at night and not be worried by having no idea as to what is actually happening with your finances. Businesses often end up in trouble and owners can get way in over their head. A lot of the time this is attributed to a lack of understanding or interest in the financials. They spend money without checking against a budget, reconciling bank accounts, or watching their cash flow, which is very frightening but can often be the case.
Employ an accountant to assist in this area if you really do not know where to start. Your first budget can be a bit of an unknown and overwhelming but after your first year of trading or operating, you will have a template and actual figures to guide you and help with your forward planning.
Look at a general ledger table and work out projected business costs. Make sure you include everything: salaries; superannuation; marketing; phone, internet, computer expenses; rent; electricity; license fees; travelling expenses, if applicable; petty cash; stationery; banking and merchant fees; the list goes on! Also work out your projected income from all streams. Make sure that they balance or that you have a plan if you are starting out as to how to cover costs, meet loan payments, and most importantly, pay your staff.
There is a saying that to make money you need to spend money, but you also need to feel you have understanding
and control over your finances. You also need to make sure that you are comfortable with projections and where things currently sit. Always be realistic.
Take the time to analyse and check your actual progress compared to the budget on a monthly basis. It’s important to monitor your budget and track your progress to ensure nothing blows out or to review to make sure you are keeping things relatively on track. Know your figures; if you are new to business or feel that you need help in this area, enlist the help of someone who can teach you how to read and balance your books to keep things under control. You’ll regret
it if you don’t.