How to properly budget for your business

Budgeting is a crucial part of running any business as it can determine if you have enough capital for your business to continue to survive at all.

This is a worst case scenario – but if you’ve never budgeted, how do you know you aren’t just losing more money?

Once you start crunching numbers and analysing your spendings, you might realise you need to tighten your budget in one division or that you should invest more in another.

Business owners have so much to do all year, which is why outsourcing a small business accountant to crunch your numbers for you can take the stress off.

 

How do you budget for a small business?

A business budget is a documentation describing how you have and how you are going to spend your businesses capital across all aspects throughout the year, including:

• Staff
• Assets
• Equipment
• Investments
• Loans
• Contractors
• Bills

In order to write up a budget, you need to compare how you will spend in the future, how you have spent in the past and the revenue you have gained from that spending.

You need to maximise your input in areas where you’re getting large returns and you need to minimise your input in areas where you aren’t seeing as much return.

To do this precisely, you need to keep a good record of all the spendings.

 

Why is budgeting for a business important?

Budgeting is important in order to save money and allocate it for divisions you need it in the most and to make sure you’re not creating a loss.

Let’s use a really simple example for this.

Perhaps you are an owner of a bakery, and one pastry you sell is a truffle pastry – it’s infused with truffle oil, which is very expensive. The leftover pastries that were not sold during the day may need to be thrown away for health and safety reasons.

While budgeting, you find that the truffle pastries that have been sold in the past month have made you $200. However, the oil and the other ingredients you used to make the pastries included those discarded in that month has cost you $300.

Therefore, you are at a loss of $100 for those pastries. You would then decide to either bake less truffle pastries daily or take them out of your menu.

By keeping receipts and measuring how much you use of the yeast, oil, flour etc., you can work out figures like this which will help you with budgeting.

With other examples in budgeting, it’s not so black and white and it’s more difficult to determine how much money is getting used.

An example is, perhaps you are an owner of a manufacturing factory, different brands outsource you to package and distribute their products.

You consider that you’ve been paying $1000 a month in rent for two years on a separate office space that you thought would be a great investment and get used for meetings with clients or meetings with staff.

But it’s hard to determine how much you’re exactly gaining from these meetings with a dollar sign because you don’t get something directly out of it.

In times like these, it’s best to talk to an accounting services company about whether keeping the office space is worth the cost.

Remember, you don’t always have to see everything in dollar signs: you might not be getting a financial gain from an office Christmas party or a work brunch, but aspects like these are important in maintaining company culture and building good relationships with your employees.

What should be included in a business budget?

Consistent advancements in technology mean that budgeting is becoming easier and more accessible.

There are many different templates you can find online to help you budget. The most common template you’ll see is a table.

In the horizontal row, you generally have the independent variable, generally in a budget this will be some sort of measure of time, such as years, quarters, or months.

Ideally you would have several tables for all of these time periods.

Another independent variable could be, “predicted,” ”spent,” and “difference,” to see how you have followed through with a previous budget.

The vertical columns will generally be the dependent variable, which will be things like electricity, rent, uniforms, and office consumables. Within the body of the table will be the amount spent in dollars.

You will also generally display sections of the vertical columns to show different categories as listed in the initial dot points, like staff, bills and assets.

You then infer from the table how much money should be divided and for which sectors.

Why is accounting useful for small business owners?

Small businesses are always competing with big chain branches which is why small businesses need to be extra careful with how they spend their money.

A small business accountant in Melbourne is trained and qualified to handle all accounting and tax budgeting for a business.

They can give you or your bookkeeper advice on the best ways to handle your finances or you can hire them to take care of all financial aspects for you.

How can an accountant help with small business?

Bruce Edmunds is a small business accountant in Bayside that can give you advice on BAS and IAS lodgements, bookkeeping services, financial statements, tax audits and returns, ATO and ASIC lodgements, superannuation, budgeting and more.

Contact Bruce Edmunds today

Visit your local accounting firm in Bayside at Bruce Edmunds so that we can help with your small business’ accounting needs.

Call us on (03) 9589 5488 or fill out this form to make an inquiry today.