Why is a business budget important?
Financial clarity
A well-structured budget gives you a clear picture of your business's financial health. It helps you understand how much money is coming in, where it's going, and whether you're making a profit.
A small business budget also helps you make predictions about the future. Like a nerdy Nostradamus, you can foresee potential cashflow problems before they happen.
Decision-making and goal-setting
With a budget in place, you can make informed financial decisions about your business. It becomes your trusted advisor when you're considering new investments, hiring staff, or expanding your operations.
Plus, it can also help you with your business goal-setting. Whether it's saving for future expansion, paying off debt, or increasing profits, a budget provides a roadmap to reach those goals.
Expense control
Budgeting helps you keep a close eye on your business expenses, which is crucial for cashflow management. By grouping costs, you can see areas where you might be overspending.
With products like the Business+ Unsecured Loan and Business+ Unsecured Overdraft, you can borrow to invest in your business. A budget helps you keep track of ‘good debt’ that can help with business growth.
What should you include in your small business budget?
To create an effective budget for your small business, you need to delve into the nitty-gritty of income sources and expenses. Here's what you should include in your budget.
Profit and loss report
A profit and loss report shows whether your business is making money. Put simply it’s your income minus your expenses (hopefully the result is in the black).
A profit and loss report is a must-have for small businesses. To help you get started, download our free profit and loss template.
Balance sheet
A balance sheet tells you the difference between what you own (your assets) and what you owe (your liabilities). It’s a great indicator of what your business is worth and not to be confused with a budget statement which is a plan of your future expenses.
Cashflow statement
A budget that includes a cashflow statement lets you set specific financial goals for your small business.
A cashflow statement helps you see what money flows in and out of your business, and lets you plan for the future based on those results. It’s an indicator of your business’s liquidity or solvency (words to drop at your next BBQ for extra cred).
This is vital for small businesses to stay on top of because cashflow inconsistency is one of the main reasons businesses fail.
Setting up a small business budget
Revenue
Start by listing all the ways your business makes income such as sales, service or investments. It’s this revenue that drives your cashflow and helps you sleep a little easier at night.
Costs
There are two kinds of costs that your business is likely to incur: fixed and variable.
Fixed costs are expenses that stay pretty much the same each month, like rent, insurance, and wages.
Variable costs, well, vary. The price of materials and stock might change, or you might pour more money into a marketing campaign.
One-off expenses like equipment maintenance can also raise their ugly heads.
Understanding the impact of costs is essential for managing your cashflow.
Contingency funds
If you can, set aside part of your budget in a business savings account for unexpected expenses or emergencies. They might not happen regularly, but when they do they can have a significant impact on your cashflow.
Pay yourself
Treat yourself like an employee and budget for your own wage and superannuation. You’ll find it’s a
much more accountable way of drawing an income from your business than dipping into your
savings.
Tips for creating your business budget
Now that you know what to include in your budget, here’s how to craft a successful one.
Be conservative
When estimating your revenue and expenses, be conservative. It's better to underestimate your income and overestimate your costs to avoid cashflow problems down the line.
Track your spending
Keep detailed records of your expenses. This will help you stay on top of your budget and identify
any deviations that might impact your cashflow. And remember to keep your business bank accounts and personal everyday accounts separate to make expense tracking easier.
Review it regularly
A budget isn’t something you create and forget about. Regularly review and update your budget, especially the cashflow statement, to reflect changing circumstances.
Know your limits
If you're not comfortable with numbers or budgeting, find a trusted financial advisor or accountant who specialises in small businesses. They can help you manage your budget and even upskill you so you can do it yourself.
Include business savings
Open a business savings account and allocate a portion of your income to it. Many small business owners put money aside to cover their tax commitments. But you can open as many business savings accounts as you like to pay for future growth, in case of emergencies and for growing a healthy balance when cashflow challenges arise.
A Business+ Saver Account has no account keeping fees, a good interest rate and you can access your savings any time you need them.
How to get the most out of your small business budget
There’s no point having a shiny new bobcat in your shed if you’re not going to use it. Same goes for your budget.
So, here's how to get the most out of your small business budget.
Stick to it
It's easy to create a budget. The challenge is sticking to it. Be disciplined and avoid impulsive spending that can disrupt your cashflow plan.
Review and change it
Regularly review your budget and compare it to your actual income and expenses. If you see discrepancies, adjust your budget accordingly.
Prioritise cashflow
When you have limited resources, prioritise cashflow and limit spending (yes, it is worth repeating). Make sure that you always have enough money in your Business+ Account to meet your immediate needs.
Opening multiple transaction and savings accounts for specific purposes (such as tax and payroll), helps you budget for these expenses so there’s no scrambling when they’re due.
Celebrate milestones
Have some fun! When you pass milestones, celebrate your success. It boosts morale, builds confidence and motivates you to keep managing your small business finances.
A well-crafted budget is a valuable tool for even the smallest of small businesses.
By understanding its importance, including the right elements, following budgeting tips and getting the most out of your budget you can steer your business toward success.
Download our Small Business Budget Template to get started today.
For everything you need to know about running a successful business, visit our online Business Hub.
