No matter the size of your business, being fully aware of your income and expenditure is of paramount importance. If the accountancy spreadsheets are unbalanced, or you’re simply unaware of certain outgoings, profit margin and the company itself will suffer.
The ideal budget should help your business maximise earnings whilst remaining prudent at the same time. Every purchase should be scrutinised and all avenues exhausted before settling on most efficient investment strategy.
Over time, this provides increased room for manoeuvre where the business isn’t constantly hampered with financial burden. Dealing with the HMRC and loan providers is also made easier with a sustainable budget to work from.
Here are some ways business owners, sole traders or freelance workers can form a balanced budget – vital for curtailing excess spending and boosting cash flow.
If you don’t stay on top of your accounts, it will have detrimental effects on your future planning. Make sure you keep records in real time and avoid bulking accounting sessions together in one go.
Split all of your income and expenditure into individual segments. This helps you evaluate your outgoings with more clarity and plug gaps where needed.
Accountancy software will automatically update your spreadsheets using computer algorithms. They can save time and money, although should be looked over by your accountant to ensure costly mistakes aren’t made.
Use your accounts to form accurate forecasts of future budget periods. Here, you can assess whether the current business model is working and which areas need to be tightened up. Also factor in possible ad-hoc payments that are often overlooked.
How a Balanced Budget Should Look
An efficiently organised budget will have clear indications of your assets and liabilities, assisted by meticulous record keeping and an up-to-date accountancy spreadsheet. A successfully balanced budget will keep your company in the black.
Make a list of all your current assets, such as cash and money owed, as well as fixed assets like property and office equipment. Note all your liabilities, such as staff wages and loan repayments, and determine the net worth. When calculating income, remember to do so after all tax has been deducted, and split incomings into a monthly figure. As well as considering your fixed monthly expenditure, remember variable payments – such as travel expenses or heating bills – that can change from month to month.
Benefits of Budget Planning
Having a well organised budget has many advantages for a business. With improved clarity and sound financial information to work from, you can pinpoint areas of concern and anticipate future problems. To help get you started, there are various online templates available for free.
For SME business owners in particular, it can pay dividends to seek professional guidance during this stage. There’s usually always some expense or other that is neglected, leading your forecasts astray and sometimes resulting in dire financial consequences for your company.
If you would like some help planning your budget, get in touch today.
If you found this interesting and would like to know more, check out Investments Versus Expenses: What’s the Difference?