New financial year business budget basics
“A budget is telling your money where to go instead of wondering where it went.” ~ Dave Ramsey
Budgeting is essential for the financial health of your business.
You need a business budget to:
- Plan business activity
- Allocate funds
- Keep track of debt
- Achieve business goals.
The new financial year is the perfect time to take stock of what you’ve achieved in the last 12 months and prepare a budget for the year ahead. And your accountant is the perfect person to help prepare your business budget for the new financial year, but first, here’s a general guide to get you started.
How to create a business budget
It may seem tedious to gather the information you need to prepare your new financial year business budget, but your efforts will pay off tenfold, guaranteed.
A budget will help your business:
- Determine where you’re spending too much
- Uncover ways to cut costs
- Avoid wasting money on unnecessary things
- Help you reduce debt
- Create a financial safety net
- Support business growth.
In a nutshell, your budget is a plan for your revenue and expenses and is usually prepared for quarterly or yearly periods. Within your budget, you may also like to have monthly forecasts to assist you to stay on track to achieve your overall goals for the new financial year.
A typical business budget will include:
- A cash flow statement
This is an important tool to manage your business finances and track the money flowing into and out of your business.
Depending on your industry, your cash flow may be impacted by seasonal trends and tracking these through budgeting can assist you to know when you might need extra cash to cover your expenses or pay down debts.
- Profit and loss statements
This is a list of your sales and your expenses on a monthly, quarterly or yearly basis.
It is a necessary tool to develop sales targets and to ensure you have correctly priced your goods or services.
- Balance sheet
This is a snapshot of your business’s financial health, includes a list of your assets, and liabilities and offers a general ‘lay of the land’.
You need an up-to-date balance sheet to stay on top of your business debts and ensure you have enough money to fund your operations on a daily basis.
How to put your budget to use
Bookkeeping helps you to keep track of your finances, but it is all the more meaningful if you can cross-check against your business budget for a holistic snapshot of how your business is travelling.
Keeping track of your budget as the financial year progresses is an excellent way to uncover patterns in your business operations and tweak pricing, products and services in a timely manner.
Once you have firmed up your new financial year business budget, you can use it to compare your actuals to your budgeted forecasts.
The combination of bookkeeping and business budgeting will help you to figure out:
- If you’re overspending
- If you have enough working capital freed up to pay bills
- If there are obvious cost-cutting opportunities revealing themselves mid-month, mid-quarter or mid-year that you can reduce right away.
Keeping track of your budget as the financial year progresses is an excellent way to uncover patterns in your business operations and tweak pricing, products and services in a timely manner.
Other things to consider
While you’re getting together the things you need to create a business budget that will help to build your business and start the new financial year strong, you could also consider:
- Staying abreast of upcoming legislative changes that could affect your business and your budget
- Analysing data for forecasting
- Aligning budget with strategic direction
- Reassessing your value proposition
- Ensuring you have reassigned any leftover funding from the last financial year.
Where to get help with your business budget
At North Advisory, we are specialists in accounting for start-up, growing and established businesses.
One part of our comprehensive services is the creation of a business budget to see you through each new financial year and beyond.
To chat to one of our dedicated team of accountants about how to set up your business budget this new financial year, contact us today.
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