Budgeting for business owners is an essential part of understanding what you need to do to help your business be a success in the new financial year.

July officially marks the start of the new financial year. That makes it the perfect time to start tackling your new year’s financial goals. And to start the financial year off right, you’ll need an updated business budget.

So, we’ve broken down the bare bones of a business budget that will help your business achieve its goals in this new financial year.

Budgeting For Business Owners

Costs

The best way to begin updating your business budget is to start by identifying your fixed costs. These are all the items that will come up each month, at the same price point. They might include rent or salaries, among others, and you’ll likely have real figures for these expenses.

Then you need to figure out your ‘estimated’ fixed costs. These are things like telephones and rates. You’ll have to pay them each month, but the costs will vary somewhat, so you’ll have to estimate the average monthly cost.

You’ll also want to factor in some expenses in the miscellaneous category which will cover costs that pop up unexpectedly. This might be replacing broken equipment or updating software.

Finally, estimate the expense of things that you’re not sure you can afford, but that you would like to. These are the things that you feel would really boost your business to the next stage. If you’re a solopreneur this might be hiring a VA. If you have a team of tradies, it might be updating the fleet, or maybe upping your marketing campaign.

Revenue

After you’ve set your costs, you’ll want to determine your approximate revenue. You do this by predicting your month-to-month sales for the entire year. This can be really hard, and very confronting, especially in the first few years of business.

When your business is very young, it might help to start by talking to other, more seasoned people in your industry, reaching out to potential customers and watching industry trends. This might help you to put together a rough estimate of your potential revenue. But regardless of how you find your number, always include a margin of error in your predictions of between 10 and 20%. Err toward 20% when your business is younger, but the longer that you’ve been in business, the lower your margin has to be.

Monthly Planning

Once you’ve worked out your costs and revenue, you’ll need to start breaking it down month-by-month for the full financial year. This means estimating what impact your expenses will have on your revenue. This involves understanding when you might have increased or decreased expenses (such as when stock might be at a low price, or when demand is higher), or might need to increase ordering for the next month, for example.

Go through each month and determine whether you want to increase or decrease your monthly expenses based on the results of your monthly planning. Keep all this information in a spreadsheet to help you really see your numbers.

Create a Budget Document

Too many business owners stop their analysis at this point. They don’t worry about making an actual budget document once they’ve determined that they’ll be able to keep running their business. But an actual budget document puts the budget in a form that everyone in your organisation will understand.

The simplest form is one that lists projected expenses by category and projected income by source, with totals for each.

If you’re looking for a budget planner template, start here.

Working With Your Budget

Now that you’ve put in the work to create your business budget, you’ll want to use it. Most organisations review their budgets regularly – once a month is usually a good idea. During your review you can see where your predictions are accurate, and where they weren’t, and revise your budget accordingly. Your budget can also become the basis for other financial documents (such as balance sheets, for example).

Your budget should also help you understand:

• If there are any gaps in your funding (and so your ability to keep your business running successfully), where those gaps are and what you need to do to close those gaps.
• Help you keep track of your money, so you can adjust to any changes and not overspend (i.e., manage your cash flow).
• Help you set goals for your company and see how to accomplish those goals.

Managing Your Cashflow

At the end of the day, the secret to an excellent business budget is using it to help you manage your cashflow. First it can help you ensure you have cash resources to cover any situation that might arise. It can also help you implement changes to your budget when unexpected expenses arise.

Takeaway

Budgeting for business owners in the new financial year is important. It will help you nail down your business’ priorities and keep control of your finances. It will also give you clear guidelines about what you can spend and when, so you know when it’s time to grow your business, or hold back.

If you have any questions about putting together your business budget get in touch. We can help you sort out your costs and expenses for the year, and understand what the number are telling you.