How to Create a Realistic Business Budget

How to Create a Realistic Business Budget

Your business needs a budget but when you’re starting out it can be tempting to skip this step. That would be a mistake, because a budget is a powerful tool to ensure the financial health of your small business. A realistic budget enables you to make confident financial decisions and save money for future investment and expansion. On top of this, your budget will prevent you from overspending and provide concrete goals against which you can measure your success.

It can be difficult to know where to start when it comes to creating a budget, particularly during your first year in business. You’ll need to work with estimates if this is the case, but it will still make financial planning much easier. Once you’ve laid out a realistic budget, you’ll be able to adjust it as necessary rather than starting from scratch. Here are six easy steps to creating a realistic budget for your business.

1. Calculate Your Income

Business income is the money you receive from customers for your goods or services. This is easy to work out from your records if you’ve been in business for a while, but if you’re just starting out you’ll need to make an estimate. Try to be as realistic as possible but if in doubt, always err on the side of caution. It’s better to be conservative with your budget than risk overspending.

If you’ve been in business for a year or more, take some time to analyse seasonal trends. If you’re new, do some research on patterns within your industry. Many businesses experience a boom in sales at Christmas, followed by a lull in January.  It’s important to plan for these peaks and troughs as accurately as you can.

2. Determine Your Costs

Once you’ve worked out your projected income, it’s time to take a look at your expenses. Business costs fall into three different categories: fixed, semi-variable and variable.

Fixed: these costs are the easiest ones to calculate. Fixed costs are the expenses that are likely to remain the same for the next year or so, such as rent, internet and insurance.

Semi-variable: this is a bit of a grey area. Semi-variable costs are fixed costs which may increase or decrease in proportion to your workload. For example, a boom in sales might result in increased hires, phone bills or power usage.

Variables: these expenses are directly linked to your number of sales, such as commissions or raw materials. This is the part of your budget that you’re most likely to have to tweak over time. You can calculate this by adding together all of your variable costs over a given period of time and then dividing them by your production volume.

3. Factor in One-Off Expenses

You need some wiggle room in your budget in case things go wrong. Unforeseen expenses do crop up every now as then, so you need to be ready for them. For example, if a piece of equipment breaks down, you’ll need to replace it as soon as possible so that it doesn’t impede productivity. Of course, some one-off expenses are planned, such as facility upgrades or conferences. Keep a separate fund for this type of cost and don’t be tempted to put it towards your regular expenses.

4. Work Out Your Profit

Your profit represents how much money you’re actually making. You could have a huge income, but that doesn’t mean much if it’s outweighed by even larger costs. To calculate your profit, subtract your costs from your income.

5. Refresh

A budget doesn’t mean much if you don’t review it regularly, and a lot can change in a surprisingly short amount of time. It’s vital to keep checking your budget and making adjustments whenever necessary. Each month, set aside some time to check your finances and compare them against your plan. This will keep you on track and allow you to keep your budget relevant to your business.

6. Use Bookkeeping Tools

Staying on top of your budget can be time-consuming, especially when your business is growing and you’ve got a million other things to do. Cloud-based bookkeeping software is the easiest and most reliable way to keep track of your expenses and you’ll have 24/7 access to your records from anywhere in the world, so long as there’s an internet connection.

The Importance of Budgeting

A realistic budget for your business makes it so much easier to plan for the future. However, regularly reviewing and adjusting your budget is essential, or it could quickly become outdated. Your budget is a roadmap for your business and it helps you to prepare for all manner of situations. Most importantly, it gives you control over your finances, which will help your business not just to survive, but to flourish.

Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.

Book a free consultation here, to learn more about our accounting services.

5 Simple Ways for Startups to Improve Cash Flow Management

5 Simple Ways for Startups to Improve Cash Flow Management

Cash is king in business and good cash flow management is essential for the success of your startup. Think of cash flow as blood flow and you’ll understand just how vital it is to the health of your business; without it, you’ll die. That sounds bleak, but it really is important to manage your cash flow well from the very beginning and protect your business against any problems along the way.

Even if your business is very profitable, you’ll struggle to cover your costs without sufficient funds available. However, at the same time, an excess of cash suggests that you’re not re-investing enough into scaling your business. Finding a balance takes accuracy and attention, but it can be done by following the steps outlined below.

1. Regularly Prepare Cash Flow Statements

Before you can start planning for the future you need to get a clear picture of where you are right now. This is where cash flow statements come in. A cash flow statement provides an overview of how much cash is coming in and going out of your business. This then allows you to perform a detailed analysis of the financial health of your business.

A cash flow statement requires a lot of data and so a cash flow calculator can be very useful in helping you prepare this document. You also might want to think about hiring an accountant to ensure that your statement is accurate, since getting this wrong can lead to bigger mistakes down the line.

2. Create Cash Flow Projections

It’s important to understand what your cash flow is likely to look like in the months to come so that you can plan ahead and manage your finances wisely. Realistic cash flow projections can help you to invest your money at the right moment and account for any potential pitfalls along the way. This process can be time-consuming and complex, so again it’s worth using accounting software or enlisting the help of a professional. These projections are incredibly valuable when it comes to scaling up your business and so they’re worth investing in.

3. Prepare a Safety Net

Any entrepreneur will tell you that it pays to have a safety net, particularly when you’re scaling your business. Investing in growth can lead to short-term negative cash flow which is perfectly okay, so long as you’re prepared for it. A cash reserve will help to smooth things over when you’re having cash flow problems and ensure that you have enough funds available in order to pay suppliers and staff. It’s also worth investigating whether a credit card or line of credit could be beneficial to your startup to help you keep operations going when cash runs dry.

4. Plan For the Long Term

As important as it is to have a handle on where you are right now, your business won’t be this way forever. After all, the ultimate goal is to grow out of the startup stage – and this means big financial changes. Furthermore, there are many factors outside of your control that could affect your cash flow in the future, such as inflation, recession or late payments from clients. It’s always best to be prepared for the worst so that your business is protected against any eventuality. Take some time to research and forecast potential changes in market conditions that could impact you in the future. Again, it’s worth consulting your accountant for advice that could help to protect your business.

5. Stay On Top of Invoices

It’s important to manage cash inflow effectively and sadly, you can’t just bank on customers always paying you on time. You need to ensure that you send invoices in a timely manner, set clear payment deadlines, send reminders and chase up late payments. If you have a large customer base, this can be a time consuming process and it may be worth looking into accounting or invoicing software to take care of this for you. Not only does this help you to manage cash inflow accurately, it also frees up your time for more valuable pursuits.

Cash Flow is Key to Your Success

There’s a lot to think about as an entrepreneur but managing your cash flow well is one of the most important ways of ensuring the financial health of your business. Not only does this help you to protect your startup against market changes and late payments, it enables you to invest your money wisely and at the right moment. Good cash flow management isn’t just about protecting your business from collapse, it’s also vital to help your startup to grow and flourish.

If you’d like to talk to us about how we work with startup businesses like you, book a free consultation with us.

4 Ways Cloud Accounting Helps You Get Paid Faster

4 Ways Cloud Accounting Helps You Get Paid Faster

There are many benefits to using cloud accounting software, such as value for money, time-saving automation and more flexible working, but did you know that it can help you to get paid faster, too? Getting paid more quickly is one of the best ways to improve your cash flow and keep your business running smoothly, so don’t overlook this important benefit of cloud accounting software. Let’s take a closer look at how cloud accounting can help you get paid faster.

1. Automated Invoicing

If you want to get paid quickly then you have to get your invoices right. Preparing your invoices manually increases the likelihood of human error. Mistakes on your invoices can then lead to unhappy customers and a lot of unnecessary back-and-forth trying to fix the issue. This means that you’re likely to be waiting for longer for the money you’re owed to reach your bank account.

Cloud accounting software programs can automate your invoices for you, allowing you to send accurate invoices on time. Best of all, the invoice is emailed straight to your client’s inbox, so you don’t have to wait several days for them to receive it by mail.

Furthermore, if you provide your clients with a subscription service then you can set up your accounting software to automatically send recurring invoices. This ensures that your invoices are always sent on the correct date and it will save you time and effort, too.

2. Track Your Receivables

It can be difficult to remember which of your clients owe you money at any given moment, and if you manually invoice them it may take a while to find out. This makes it more difficult to stay on top of your receivables and chase up late payments in a timely manner. However, cloud accounting software enables you to see who owes you money with a quick glance at your dashboard and then you can take action accordingly.

Your clients are far less likely to pay you on time if they think that you’re forgetful and unlikely to follow up. However, if you consistently send them payment reminders and are prompt to follow up on missed deadlines, your clients will take your payment terms seriously.

If you notice that a client is frequently late with payment, it may be time to consider introducing late fees. Of course, you should give them plenty of notice that you are making these changes. When the deadline is approaching, make sure to send them a payment reminder that clearly states the fees again so that they have time to cough up before incurring fees. This will certainly incentivise late-paying clients to respect your deadlines. Best of all, cloud accounting software allows you to easily automate these charges so that you don’t have to do any complex calculations yourself, either.

3. Shorter Payment Cycles

Many small businesses offer their clients 30 days to pay, but these generous deadlines may soon be a thing of the past. Back when companies had no choice but to mail physical invoices, 30 day payment cycles were necessary. It would take at least a few days for the invoice to reach the client, who would then need to process the invoice and issue a cheque, which would then need to be mailed back to the business owner.

Now, however, thanks to the power of cloud accounting, 30 day payment terms are no longer necessary. It takes mere seconds for digital copies of an invoice to reach a client’s inbox and payments are electronic. Therefore, consider leveraging the convenience of cloud based accounting software to shorten your terms and get paid faster.

4. It’s Easier for Clients to Pay You

Electronic invoicing makes it easier for your clients to pay you and therefore they are likely to do it far sooner. Cloud accounting software allows you to accept several forms of payment, including PayPal, debit cards and bank transfers. Your clients simply have to choose the option that is most convenient for them and they can click a link to pay your invoice in full. Your cloud accounting platform will then identify each payment according to the customer and invoice number, ensuring that all of your records automatically stay accurate and up-to-date.

Conclusion

As a business owner, getting paid on time is probably one of the most difficult parts of your job – and the most necessary. Take advantage of the capabilities of cloud accounting software to speed up your payment process and improve your cash flow. This will ensure that your business remains in the best possible financial health, whilst saving you a lot of time and energy.

If you’d like to speak to us about how we can support you with cloud accounting, book a free consultation here.

4 Reasons to Hire a Financial Consultant/Advisor

4 Reasons to Hire a Financial Consultant/Advisor

Whether you’re running a small business, or your company is struggling to thrive in this tough economy, knowing the best way to spend and save money can be difficult. This is where a financial consultant/advisor comes into play. A skilled professional can review your current financial situation and provide insight on how you should allocate funds for the future to help you reach your goals.

Overview: What Does a Financial Advisor Do?

A financial consultant/advisor can help you budget, forecast, and save money for your business. They look at the big picture to determine how much capital is necessary to keep operations running smoothly. In addition, a financial planner will look at your company’s goals and determine which path is best to achieve long-term success.

1) Make Your Business More Profitable

A financial consultant/advisor can help you improve the bottom line of your business in a variety of ways that allow you to achieve long-lasting success. First, they will assess how profitable your company is at this point in time, and then look at ways to maximize earnings moving forward. This might involve adding lucrative new products or services, updating your current offerings, or revamping your marketing campaigns. You may think you’ve done everything you can to maximise profitability, but often you’re too close to see the bigger picture. It’s surprising just how much light can be shed from an expert outsider’s perspective.

2) Save Time

Many business owners learn how to handle their finances the hard way – by going bankrupt. Fortunately, you don’t have to waste years on trial and error. When you hire a financial consultant/advisor, you can skip all of these costly mistakes and failures and instead use their expertise to fast-track your business towards financial success.

3) Plan for Growth

A financial consultant/advisor can help you prepare for growth and expansion within your company. This could mean hiring top talent, making your processes more efficient, establishing new office locations or marketplaces, and helping you to mitigate risks. Growth often causes financial difficulty for business owners, but the right consultant/advisor will guide you through the process so that you are able to maximise all of the opportunities available to you and preserve the financial health of your company.

4) Personal Finance

When you spend all of your time worrying about your company’s finances, it’s easy to neglect your own. However, a financial consultant/advisor can work directly with you and your family to set up a comprehensive plan that includes the entire scope of your finances. This might include investments, retirement planning, estate planning, insurance policies, budgeting, and tax preparation. A skilled professional will provide advice on how to make wise decisions in each area so that you’re able to achieve financial success.

By working with a highly skilled advisor, you’ll be able to make confident and informed decisions about your future. You can take care of long-term planning that ensures the stability of your family while also protecting your business from potential risk factors that might arise in the years ahead.

Summary

Hiring a financial consultant/advisor can be one of the best investments you make for your business. A skilled professional will help you determine how to allocate funds, forecast future earnings potential, and save money for unforeseen expenses while also preparing your company for growth. By working with a financial consultant/advisor, you’ll be able to maximize your profits and save time so that you can focus on what matters most – running your business.

Book a free consultation here, to discuss your needs and how we can help you grow.

Useful Accounting Tips to Grow Your Small Business

Useful Accounting Tips to Grow Your Small Business

Growing your small business is no easy feat, but great accounting practices can make a world of difference. Robust financial management is the key to building a thriving business and ensuring its long-term success.

As a small business owner, you need to be on top of your finances at all times. This can be a daunting task, but there are some useful accounting tips that can help you stay on track.

1. Keep accurate records

Let’s start with the basics: accurate record keeping is absolutely essential for any business, large or small. Good accounting practices require that you track all of your income and expenses so that you can get a clear picture of your financial situation. This will allow you to make informed decisions about where to allocate your resources and how to grow your business.

2. Write a detailed budget

A budget is a critical tool for any business, and it’s especially important for small businesses. A well-crafted budget will help you keep track of your income and provide a roadmap for your spending. It can help you to avoid overspending and ensure that you are making the most efficient use of your resources.

3. Use accounting software

There is a wide range of accounting software available on the market, and it can be a valuable asset for a small business. This type of software can automate many of the tedious tasks associated with bookkeeping, freeing up your time to focus on other aspects of your business.

Using accounting software will also help you to get more out of your relationship with your accountant because they will be able to access your financial information more easily and have more time for analysis and advice.

4. Stay on top of invoicing

Invoicing is a crucial part of running a small business, but it can be easy to let this important task slip through the cracks. It’s important to stay on top of your invoicing so that you can keep cash flowing into your business.

One way to stay on top of your invoicing is to use invoicing software. This type of software can automate many of the tasks associated with invoicing, making it easier to stay on top of this important task. The less money you have tied up in accounts receivable, the healthier your cash flow will be.

5. Set clear financial goals

It’s important to outline specific financial goals so that you know exactly what you’re working towards. Your goals will give you something to strive for and help to keep you focused on the task at hand.

Some financial goals that you may want to set for your small business include:

  • Increasing your sales by a certain percentage
  • Reducing your expenses by a certain amount
  • Achieving a positive cash flow
  • Growing your business to a certain size

6. Understand Your Tax Liability

Taxes are a fact of life for businesses of all sizes, but it’s especially important for small businesses to understand their tax liability. This can be a complex topic, but there are some key things that you should know.

You need to be aware of the different types of taxes that your business may be liable for, such as income tax, sales tax, and payroll tax. It’s important to understand the requirements for each of these taxes so that you can ensure that you are compliant.

You should also know how to take advantage of any tax breaks or incentives that may be available to your small business. These can save you a significant amount of money, so it’s worth doing your research.

Final Thoughts

Having a solid understanding of accounting principles will help you to make informed decisions about the financial management of your small business. These tips will give you a good foundation on which to build, but there is really no substitute for hiring a professional accountant with a deep understanding of the ins and outs of your industry.

Book a free consultation here, to discuss your needs and how we can help you grow.