Established smart businesses recognise the significance and value of preparing monthly accounts, budgets and cash flow. It helps them forecast where the business is spending money and how savings can be made.
Perhaps you are a small business owner who is looking to take your enterprise to the next level? Preparing a budget is a great starting point and easier than you might think.
Budgeting relies on good estimates of income and outgoings. If you examine your last two years’ accounts, it will identify the frequency of spend, and highlight opportunities to help improve business efficiency.
Budgeting for Small Business Owners
The concept of budgeting may not be the most exciting part of your dream when you first thought of starting your own business. The good news is that the greater the understanding of the facts and figures; the greater the chance to support decision making and spend to support business success.
Where Do I Start?
There are numerous options for budgeting; a simple excel spreadsheet; your existing accounts software may have some sort of budgeting, alternatively Quickbooks has a great basic budgeting feature.
A budget will subtract your expenses from your income and show you if you are making a profit or loss.
Income and expenses are made up of the following:
Income: The money you generating from sales of your products or services. This can be split between:
- Recurring sales income:
– Regular sales from client retainers and contract work
- Other sales income:
– A calculation of the expected sales in the future.
Expenses: The money are you spend on costs such as payroll, materials and advertising. These can be broken down into:
- Regular expenses:
– Your monthly payments for rent, utilities, payroll and so on
- Other costs: payments for items like office supplies,
– Client entertainment expenses and other items
Expense items that should be considered are:
- Overheads: fixed costs such as rent, rates, electricity, gas, motor expenses, accountancy etc
- Depreciation:business assets, such as computers and equipment, lose value as they get older. Check with your accountant, or in last year’s accounts the depreciation rate used.
- Payroll: the total cost of employing your staff, their salary plus employer’s national insurance.
- Interest: interest on bank loans or other business investments
Once you have prepared your budget and established whether the business is going to make a profit or a loss you can make financial decisions for the future. You may consider growing your business, repaying loans or leaving the money in the business.
A good budget plan, cash flow and business plan are ideal to present to the bank when looking for a cash injection into your business to help growth or buy assets. If you need help with setting up budgets or understanding the figures in a budget or accounts, please contact us.