Importance of Budgeting and Planning
Budgets and planning go hand in hand. It’s important for every business owner to have a budget to help them understand the direction they want their business to go in and come up with a plan on how to get there. Budgeting helps you understand your business’s current financial status and will enable you to make more informed business decisions in the years to come.
Not sure where to begin? Here are our top tips to get you started:
Whether this is your first or your fifth year setting a budget, every business needs to start somewhere. Budgets allow business owners the ability to hone in on cashflow, reduce expenses, and increase profitability. It’s helpful to have an accounting system that enables you to monitor your budget on a regular basis.
Use historical trends
Maybe you discover that you’re constantly in debt at the end of the year or that suppliers are constantly chasing you up for outstanding payments every month? Review your books from previous years to determine any trends in your spending or earnings. This would help you identify the problem areas and allow you the opportunity to rewrite your spending future.
Review your financials in a profit and loss format. The profit and loss statement lists your sales and expenses each month, quarter or year. To put it simply, a profit and loss report shows you the true profitably of your business. It can even help you determine an appropriate price for your goods and services.
Plan Big Picture
Where do you see your business in the next 1, 3, or 5 years? Imagine it, plan it, write it down and then break it down. Now that you’ve got your eye on the prize, the question is how do you get there? Break your yearly goals down month by month. Tightening the budget down to months reduces the risk of overspending and over projecting profitability.
Use your Budget
Once you’ve setup a budget try it in your business. You can then run an analysis every quarter to see how it is tracking. This will
help you quickly identify whether you are spending too much and need to cut costs or if you have a little extra wiggle room to work with. Until you have established a tried and true budget that works for your business, it’s good to review it often to avoid a surprise at the end of the year.
Need help reviewing or establishing your budget? We’re here to help. We at Sum and Substance work closely with businesses helping them set budgets and plan their financials for the year ahead. Please contact us if you’d like some assistance setting up a budget in your business. We can be reached at (03) 9424 9447 or firstname.lastname@example.org. You can directly book in a time to chat by clicking here.