Four steps to creating an effective business budget

 

 

 

A healthy business depends on its finances. And managing your finances successfully means developing a budget that works for your business. In fact, some entrepreneurs would say that your budget is the cornerstone of your business. While a budget is obviously useful for keeping you in the know when it comes to cashflow, it’s also there to help you make informed decisions, identify when it’s time to cut costs, grow revenue or invest in the business. 

Here are the four main steps to go about creating budget that works for your business.  

 

 

Add up what you have coming in 

 

The two main components of any budget is income and outgoings. Start by listing your revenue streams and how much you expect these to bring in. While your income will vary from month to month, be as realistic as possible.  

If you haven’t been in business long enough to figure out a monthly average for income, it can be beneficial to be overly-conservative in your estimate as this may give you some headroom in the event of an unexpected drop in business revenue. The longer you’re in business, the easier it will be for you to see fluctuations in revenue due to seasonal demand and other factors. This will be critical information when planning ahead for the leaner months. 

Remember to calculate for total revenue, not profit. That comes later.  

 

 

Subtract what’s going out 

 

Outgoings will fall into several categories, including fixed costs, or the bills you know you have to pay each month (and how much they are). Rent, utilities such as Internet/fixed phone charges and any loan repayments are good examples of fixed costs. 

Next, there are variable costs, or expenses you are expecting, but can’t be fully quantified as they vary from month to month. These include items such as electricity/heating and travel expenses. It’s a good idea to add these up each month over a period of time, so you can come to a realistic monthly average going forward. 

You also need to consider one-off expenses, such as those for an emergency purchase or repair. These can be very difficult to cost, so it’s a good idea to put a regular amount each month into a ‘sinking fund’. That way, you’re prepared when the unexpected happens and the money is there to help you cope.  

 

 

Balance the books 

 

Now it’s time to balance your revenue with your outgoings. This lets you forecast your cashflow and (hopefully) your expected profitability. This is also known as your Profit & Loss (P&L) statement. If the figures don’t add up, then it might be time to go back to the drawing board and see where savings can be made or new revenue streams can be added. Straightaway, you’ll be able to see how having these figures can help with decision-making when it comes to your business.  

 

 

Make your budget work for you 

 

Once you have your basic budget in place, there are things you can do to make it more effective, so it helps you manage your business finances better. Your first step here should be to invest in technology that can help automate the budgeting process. That way you don’t have to spend too much time on it each month. Here, it’s important to use a software package that works best for the size of your operation, as well as your business model.  

Of course, there are other technologies that can help with your finances, such as getting an online business bank account with a company like KoalaPays. With an all-digital payments platform, you can easily make money transfers, convert between currencies, manage your money and even use our online Payroll system.  

It also allows you to process payments from customers. This can be set up in a way that integrates with your existing systems and makes it easier to manage your overall finance function.  

Depending on the size of your businessperhaps the best way to create the most effective budget is to hire an accountant. This has the added benefit of making sure that you don’t fall foul of the law when it comes to tax compliance. 

Few business owners like dealing with budgeting and accounts, but it‘s something you have to get to grips with if you want your business to succeed.  

Five tips for managing your business accounts

 

 

When you’re running a small business, it can be a struggle to devote all the time and resources you need to manage your accounts effectively, but it’s vital that you do. After all, accounts and cashflow form the foundation stones of a successful business.  

Here are five strategies you can implement to make managing your accounts easier.  

 

 

Get the right accounting software 

 There is a huge range of accounting software packages out there for businesses and they’re easier to use than ever. What’s more, many come with additional features that can be really useful for your business. The key here is to find software that meets the needs of your business and can offer the best value for your investment. 

While you’re at it, research apps that can help you be more organised and keep track of your incomings and outgoings when it comes to both personal and business finances. 

 

 

Don’t leave accounts to year end 

Make sure you don’t leave it all until year end. Keep your accounts up to date as you go along, even if you have to hire someone to do it for you. There’s nothing more certain of disaster than leaving all of your accounts to year end and going to an accountant with a box of receipts and invoices. Again, there are platforms out there to help with this. All you need to do is devote a little time every day or an hour at the end of the week to input the relevant details. The technology should do the rest. 

It’s vital to comply with tax legislation and all the deadlines that come with it. Keep all your receipts in an orderly fashion and include all those important dates in your business diary/calendar. While taxes can be daunting, a visit from a tax inspector or an audit can be a real strain on a small business with limited resources.   

Likewise, make an estimate of your tax liabilities for the year ahead and ensure that you set aside a reasonable amount each month to make sure you’re covered when making your annual tax return.  

 

 

Keep personal and business accounts separate 

 If you’re just starting out, or are a sole trader, it can be tempting to mix your personal accounts with your business accounts, but this can be a big mistake. Open a dedicated business account. That way your personal finances stay personal and your business accounts are much easier for you or your bookkeeper to manage. Above all, resist the temptation to secure your business finances with personal funds as it will create an accounting mess which you may need professional help with later on. 

 

 

Look after credit control 

 While it’s important to pay your bills on time, it’s just as important to stay on top of credit control. After all, this is what keeps cash flowing through your business, so you can pay those aforementioned bills, as well as yourself (and, of course, any other staff you have working for you), while continuing to invest in the success of your business.  

Make sure you have a great credit control strategy in place and follow up on invoices as soon as they become overdue. Run credit checks on businesses before offering credit terms and be clear upfront that your terms of payment must be met. If necessary, charge interest for late payment.  

 

 

Get help  

 The best way to get to grips with accounts is to educate yourself. When you’re running a business, accounting and taxes are a vital part of the puzzle. Fortunately, there are plenty of courses out there that can help you get acquainted with the basics, covering topics such as VAT or online filing. The more you understand business finance, the better you will be able to make money management decisions that influence the success of your business.  

Accounting for a small business may be daunting at first, but with the right technology, knowledge and a little help, you can put in place the systems that work best for your business. It’s vitally important that you invest the time and effort to get it right. Financial mismanagement is one of the leading causes of failure in small businesses.  

Which is why, here at KoalaPays, we provide tailored solutions to make business finance management a breeze.  With us, your business will get its own dedicated Account Manager to provide you with a first-hand advice and help you look after your financial affairs. 

Thank you for contacting us

We have received your enquiry and will respond to you as soon as possible.

In the meantime, why not check out our blog?