Start planning your financial budget now
As we near the end of the 2019/20 financial year, now is the time to begin planning your 2020/21 budget.
Budgeting is not as simple as adding an increased percentage to your last budget – it takes careful planning and analysis of historical data and trends. By engaging a Certified Bookkeeper or accountant to work with you on your budget planning, you could start your new financial year with an invaluable tool to keep you motivated, meet your targets and track your spending.
What exactly is a budget?
A budget is a financial plan for a set period, generally a financial year. Normally it would be prepared before the start of the term and not change unless there were some adverse circumstances.
In essence, a budget is a quantified expectation for what a business wants to achieve. Its characteristics are:
- a detailed representation of the future results, financial position, and cash flow targets that the business expects to achieve during a certain period of time. This may only be updated once a year or more regularly, depending on how frequently the business wants to revise information.
- a comparison to actual results to determine variances from expected performance.
- remedial steps taken by management to bring actual results back into line with the budget.
- changes in performance-based compensation paid to employees triggered by actual comparisons.
The figures in your budget will show your expected income, less your expected expenses and will not provide line by line detail, rather an overall estimated figure. There are some items that are not included in budgeting and these include: sale or purchases of assets, the introduction of new money to the business, drawings and loan principal payments.
Most accounting packages will allow you to upload your finalised budget into your software so you can track against it as the year progresses.
I have my budget, now what?
Once you have set a budget and the new financial year has begun, there are several reporting tools that will help you track your progress.
Budget variance report
A profit and loss report, sometimes called a budget variance report, can be generated to compare what has happened (your actual) compared to your budget. Your actuals are the sales and supplier invoices you have entered into your accounting package, as well as transactions that have been entered during reconciliation of your bank account. Typically, you would report on the last day of the month as well as year to date numbers so you can get an idea of how successful your budget planning has been and take note of any trends that are happening (ie. A certain product sells more in the first week of the month).
This type of regular reporting can also alert you to problems and help you identify opportunities to resolve these before they cause a catastrophic effect on your business.
Cash flow forecast
A cash flow forecast assists you in planning how much cash will come into your business and how much will be going out at various times. This tool allows you to see when cash will be scarce so you can plan ahead, be aware of any areas where adjustments may be needed, and when you may have a surplus to use against planned new assets or paying down some debt. It will also help you plan for upcoming large payments like income tax and GST.
A forecast does not have to be overly detailed; it can be a simple spreadsheet. Often banks and accounting software companies provide you with free templates to download and use. Microsoft Excel also offers basic templates free for use.
The value of a bookkeeper
As a business owner using budgeting tools and regular management reporting will help you make the best decisions for your business, keep your business in a healthy state, and keep your stress levels down.
Your Certified Bookkeeper or accountant is the ideal person to ensure you be well prepared with your budget planning and monthly reporting tools.
Now is the time to make the call – contact your advisor today and get planning for the 2020/21 financial year. Make this year your best in business yet!