Only two months left of the financial year, if your balance date is 31 March!
Have you made a start on your budget for the next financial year? If not, I suggest you get a move on.
Why? Because EVERY business deserves to be PROFITABLE. And if you create a budget you can plan how profitable you will be.
A budget is the overarching document that should underpin all business decisions. It:
allows you to plan out various scenarios and see what the financial impact is.
allows you to manage your cashflow.
enables you to hold senior staff accountable for their departments
How do you create a budget?
Review all of your income and expenses in this financial year, and put these in a spreadsheet
For next years income, determine where this is going to come from and how much it will be. Use historical information to help you (ie: 20 jobs per day at an average of $300 per job)
For next years expenses, go through and identify which ones are Necessary, Nice to have, Not needed. (You may be surprised by the number of subscriptions that you pay for that you no longer need).
If you are working in the business, make sure to include your wages (regardless of whether you are paid through payroll or drawings) - this is because if you weren't doing that job, you would need to pay someone else to do it.
Create a loan schedule outlining all of your loans and the repayments (principal and interest) required each month. Include any new asset purchases that you intend to use finance to buy.
Create a schedule of outstanding debts that may be on a payment plan or not paid due to cashflow issues ie: suppliers not paid on time; IRD debt on a payment plan, etc
Once you have done this in as much detail as possible, deduct the expenses from the income to give you a profit figure. Now remember, your profit will be used to pay the following:
Income Tax (assume 28%)
Loans (as per your loan schedule created above)
New asset purchases using cash
Outstanding debt (as per your debt schedule created above)
Drawings (Money taken out of the business by the owner)
So, if your profit is $100,000, income tax is $28,000, your loan repayments are $30,000, you plan to pay $10,000 cash for a new asset and you have $20,000 outstanding debt, you are left with potential drawings of $12,000. Combined with your wages (included as an expense), is this enough?
If not, you need to go back, review and tweak your budget.
Once completed, you have a budget that clearly outlines
what sales you need and where you expect them to come from
what costs you can incur
what amount the business is able to pay you
From the information in the budget you are able to plan your staffing, sales and marketing strategies, systems improvement, new products and services, etc.
It is important that you review and adjust your budget regularly, taking into account any changes in your business or economic environment.
Don't let "not knowing how to do a budget" stop you from making it happen. It is an integral part of running a business, and one that many business owners underestimate the importance of.
If you need help doing a budget, get in touch!
I’ll set up a zoom and get to know more about your business!
Not quite ready for that but know this is the year to make more money? Sign up here to receive my weekly email - practical business tips and tricks.