New Financial Year – Let’s Chat About Business Budgeting.

Its time to look at budgets as a way to facilitate big picture strategic planning.

It’s a new year and time to prepare for the year ahead. Now is the time to view processes and think about the opportunities that lie ahead over the next 12 months..
For accountants it’s a time we make New Year financial resolutions.

A great way to make big changes in your business is by setting a business budget. It might sound like an overwhelming task but a well-planned and thought out budget can add stability and often give your business some much needed vision.

Instead of starting a budget with sales, think about it another way. Try to build a budget from the bottom (Profit) up. Think about what profit you want the business to make. Review all of your costs and brainstorm ways on how to reduce some of these items. The revenue will be determined by target profit plus all business expenses. Putting profit first it determine what our top line (Revenue) should be.

Think about these steps when putting together a budget for your business:

1.  Profit First (The Net Profit)
   How much profit do we as an organisation want to make for the amount of risk we are taking? This should include paying yourself as a director).

2. Our Operating Expenses (The things that are hard to change)
   Review all items such as: advertising, insurance (car as well), phone, internet. Are we using all of our space in the retail of office premises? Can we renegotiate or get a better price? The larger number of small saving you make the bigger the saving over all.

3. The Direct Expense (Product costs)
   These include the costs to make or sell your product or service. This can be tricky but reviewing supplier costs and ensuring you are getting the best price is necessary.

4. Our Target Revenue (Net Profit plus Operating Expense plus Direct Expenses)
   Now that we have our revenue number it’s important to break this number down month by month and adjust for Christmas holidays and any seasons that may affect sales.
   
   Here is an example:
   Our business wants to make a net profit of $100,000. The operating costs (Day to Day costs - Rent) are $150,000 and the direct costs are $200,000. To achieve the desired net profit the annual revenue would need to be $450,000.

Once we have completed the above, it’s important to ask ourselves “is the revenue a target or a realistic budget”.  A good accounting software (like Xero - wink wink) will allow us to review the business’ historical data and ensure budgets are realistic. 

As a result these conversations tend to facilitate bigger picture, and more complex strategic planning discussions, which is great! Typical questions that follow are - how will we reach our revenue target? Do we have enough capacity to cover the targeted revenue? Do you need to increase your pricing?

Now is the perfect time to set 5 goals for the business and share it with everyone in the business.

Every business needs a budget so if you need help in putting one together, please contact us!

The Field Kiriakidis Accounting Team