We’ve all heard of the phrase ‘new year, new you’ but we’re guessing you haven’t heard of the phrase ‘new financial year, new business budget’. Bit of a mouthful. However, end of financial year is fast approaching. As we come to July, all small businesses should start thinking about mapping out a business budget for the coming ‘year’ ahead. Here at AFY, we’ve broken down the bare bones of a business budget to help your businesses new year resolutions.
For a business budget, the easiest way to begin is to identify all your fixed costs, that is, those expenses that will inevitably come up each month at the same price. You should also identify your variable costs, those expenses that vary month to month e.g. wages or optional costs.
The next step is to predict your month-to-month sales stream for an entire year. This can be difficult. It’s easier if your business is a few years old, but if your business is new, you may want to talk to people in your industry, prospective customers etc. to get a rough estimate. Make sure during this process you add in a margin for error of your estimates. Roughly 10 to 20 percent.
You’ve got your budget, broken down month-by-month for the next financial year. Your blank columns have been drawn, and your estimates are filled in. The next step is to estimate what the impact of expenses will be on your revenue. For example, if stock is currently at a low price, but demand is high, perhaps you want to increase your orders for the next month. Go through each month and determine if you want to reduce or increase your monthly expenses.
Managing the Cash Flow
The trick to a really good business budget is having cash reserves for a rainy day (or in this case, month). Alternatively, if sales weren’t great, you need to be able to quickly implement changes to the budget so your debtors can be paid on time. Constant vigilance is the key to a great business budget.
So, there you have it. Did we break down the process well? Would you like help with your business budget? If yes, please feel free to contact us today and we’ll help get you on track. If you have any questions at all, please let us know.