You could inadvertently be setting your business up for failure, or at least unnecessary stress, by not having a working budget in place. These budgeting tips will help get you on your way to budgeting success.
“I really think it's important to have whatever money that you're collecting, form part of a budget for the business,” explains accountant Alexander Laureti of LMS Advisory.
“It can really help you plan for whatever it is you want to do in your business, but also not to be caught by surprise. I don't think any business owner wants to be caught by surprise.”
According to Alexander, a sad reality is that many business owners don’t have a proper budget in place, which can cause a lot of uncertainty, stress and added costs should payments be missed.
“I think that a lot of business owners don't budget. They know roughly what has to happen, but a lot of them get caught by surprise when, for example, the superannuation bill becomes due and payable: they know roughly that super is due at this time, but they're not quite sure how much it is,” he says.
“The hardest thing for business owners is to have time to plan out what their upcoming obligations are weekly, monthly, fortnightly going ahead. If you don't have an idea of what your superannuation obligations are, and you realise on the day it's due that you need to come up with the money to pay for that, then obviously that gives a much more likelihood of not having enough money at that time to pay that bill.”
Alexander has these tips for business owners to set a working budget:
• Work out your budget how you feel comfortable: “whether they do it themselves, whether they get involved with their accountant at least once a year.”
• Look at patterns over the past year to see when things are due.
• Take note of where your biggest expenses are – it may surprise you to see how much money you are spending on certain things over the course of a year. “You'll start to then realise how much you paid on certain expenses and it gives you the ability to then say 'is this the best spend of my business' money? Should I make some different decisions going forward?”
• Don’t wait until the new financial year to start budgeting – start as soon as you can. “Whenever you choose to start budgeting for your business, whatever time that you choose to start is better than not starting at all.”
• Look back over your incomings and outgoings over the past six months at least, though 12 months is best to give you a full picture.
• Factor in your most expensive debts first: “Pay the ATO first, because they are the most expensive debt you'll have. At 9.5 per cent interest if you pay late, it is a costly yet avoidable debt to have on your ledger.”