Streamlining The Budget Process - August 07
Budgeting is an important and necessary part of business ownership. More importantly, a budget can be a valuable tool to help you meet goals and stay abreast of the financial condition of your business.
A budget is really just a financial plan. It can be as simple or as complex as you want it to be, although a certain level of detail is necessary if it is going to be effective.
It has to be based on figures that can be supported by reasonable expectations. Those expectations are based on a combination of prior financial performance and anticipated business growth (or reduction).
If you are in start up phase of business, preparing a budget, without any history on which to base your estimates, is a daunting task. You may have some idea of what you hope to earn and how much it will cost you to earn it. You can make broad estimates of income and expenses and may get your budget done quickly, but this won’t give you a tool to gauge your performance and manage your business. It is better to start at the bottom and build up. Understand your fixed costs, margin likely to be achieved and then calculate the required amount of sales you will need to break even.
Some tips to consider when setting up your budget.
1. Accept the learning curve – your first budget will involve some “guesstimates“. Understanding patterns in your income and expenses will take some time to understand, but some educate guesses should be able to get the estimates fairly close.
2. Be prepared to miss your estimates and act accordingly - knowing that your budget projections are a best guess and nothing more.
3. Be Flexible - if your revenue doesn't match what you expected — and there's a good chance that might be the case — trim back your expenses to compensate.
4. Watch your Cash Flow - If you want to stick to a budget, make sure that your inflow more than compensates for your outflow. Monitor your income closely to make certain that you'll have adequate funds to pay your bills, particularly if your business is prone to long lapses between customer payments. Ensure that you have ample funds to meet ATO BAS and tax obligations.
5. Be Conservative - When setting up your budget, it's a good idea to overstate your expenses and lowball your expected revenue. That approach is also a solid strategy when making sure your cash flow is going to hold up.
6. Have a cash buffer - When setting up your budget, it's a good idea to overstate your expenses and lowball your expected revenue. That approach is also a solid strategy when making sure your cash flow is going to hold up.
7. Check your budget every month – measure your actual performance against budget every month and examine your cash flow to make certain your available funds are sufficient to meet your liabilities. You should reforecast future months should your circumstances change. You should consider measuring actual performance against budget by setting up the budget in your accounting software.
8. Use your budget as a form of restraint, not constraint! - Don't be afraid to go beyond your budget to spend money that's a valuable investment in your business.
Lawler Partners has a team of experts regularly assisting Franchises in developing advanced budgeting solutions. Our budgeting software uses double sided accounting that ensures integrity of the data in the models. We are also able to provide you with a budgeted cash flow, balance sheet and funds flow statement – not just a profit and loss budget.
For many years we have been utilising Sage WinForecast a powerful financial modelling tool that gives Franchises the ability to prepare detailed multi-year forecasts for key financial reports including, trading statements, profit and loss statements, balance sheets, cashflow statements, funds flow statements, and key ratio & statistics.
The power of Winforecast is its ability to be customised to your Franchise’s needs. The budget data entry area has unlimited methods of budget amount creation, allowing Franchises to create a financial model with as much detail as required
Winforecast uses double-sided accounting, eliminating the risk of undetected spreadsheet errors, providing your Franchise with professional and quality models. The models produced also calculate your projected GST and other tax liabilities, in addition to being able to account for GST-free expenses.
Should you require more information regarding how Lawler Partners can streamline your budgeting process contact Nathan Reynolds via email or telephone 02 49622688. Email Nathan
