Building a budget for your small business
Trying to run a small business without a solid budget is a recipe for disaster. Surprisingly, many people try this. Some get lucky but many of these businesses start to flounder before too long and often fail. While many small business owners are not keen on accounting skills, it is essential that they understand the basics and have systems in place to manage their finances.
In the past, this was time-consuming and challenging. It would often require the services of an external accountant from day one. These services can be expensive and fail to solve the problem if there is poor communication. The business owner needs to be involved in the finances and aware of what is going on. Fortunately, modern software systems make this task much easier.
Why do you need a budget?
• Profit & Loss report
The idea of this report is to give you your current financial position at a glance. It is your income less expenses and will show you instantly if you are losing or making money.
• Income report
This shows the money coming into your business.
• Expense report
This shows the money going out of the business on expenses such as rent, staff costs, marketing, and raw materials.
Depreciation, payroll, overheads, and repayments on debts all need to be included.
Modern accounting software solutions have made the task much faster and easier. We will look at a few of the leading options further on. It is less complicated and difficult than most people imagine.
If you have done a budget previously it should be fairly straightforward to create a realistic and accurate budget for the new financial year. Building a brand new budget with no hard data to work from can be challenging.
Ensure you have realistic targets and expectations. Look at similar businesses in the industry and your market and try to make an educated guess as to their sales and revenue. Do not be too ambitious with revenue and profit margins.
You should have a fair idea of most of your expenses. Fixed costs are easy, but make sure to include all variable expenses as well as a budget for unforeseen costs.
Your budget may not be perfect the first time around, but it will at least give you some direction and something to measure against. As your business develops you can adjust and update the budget where and when necessary.
This is a popular solution for small business accounting and includes an invoicing function. It is great for scheduled or recurring invoices and it allows you to track the invoice. It will be an asset when building your budget. The software is affordable and user-friendly.
Xero is a mobile-friendly solution that gives real-time data to help you manage the financial and inventory aspects of your business. It integrates with other software and can help with budgeting.
• Intuit QuickBooks Online
This is another powerful solution that integrates with other platforms and systems to deliver accurate and up-to-date information. It offers useful reports, and the features will be a great asset when building your budget.
• Sage 50cloud
Sage 50cloud will help you track and manage all aspects of your small business finances, including your budget. It is powerful and flexible enough to grow with you as your business expands.
Good financial control is critical to the success of your small business, and it all starts with a budget. You do not have to be a financial expert to build a reasonable budget. Just understand the basic principles and make use of the tools available to you.
Do you have any questions or comments?
If you have any questions, please do not hesitate to contact us