Talking Cents

Why having a budget is important for a small business in Melbourne

Successful people always plan. So as the end of the financial year approaches, it’s time for small business owners to start planning for the next financial year. Here are some questions for you to ask yourself:

• Do you have a target this year?

• Did you achieve your target this year?

• Is the result this year ideal?

• What is your target for next year?

• What is the learning point from this year to improve next year’s?

After answering all these questions, you need me draw up a budget. A budget is supposed to help you plan ahead and take into consideration of any potential crisis. With a budget, you are able to compare your actual spending against it to ensure you are on track. If you are not, at least you know and can take corrective actions.

Have a yearly budget and monthly budgets. If you don’t have a monthly budget, you will need to find until the end of the financial year to realize you’ve overspent, which is too late. A simple example, imagine every month you overspend on little items for about $1,000 and only after a financial year, you will find out that you overspent by $12,000. Most accounting software systems allow you to direct compare your predicted budget and actual budget.

A budget also acts like a “benchmark” for your employees to know how much they can spend. You will want to limit their spending, because people actually can spend as much as they can without a given limit. Always have “purchase order” forms for your employees to complete if they want to buy something over a certain value, e.g. $100, and approval should be attained from you or your manager.

Budgeting is important as it “shows” your lenders that you have actually thought through your business and they will feel much more confident as well as comfortable with you as a borrower. Some people say it is difficult to do a budget because it is hard to predict the sales volume. Sure you know your direct costs and overheads, so easy, calculate your breakeven point. With over 50 years of accounting experience with a diversify portfolio of customers, budgeting is part of accounting that we, M.A.S, is very confident with. Let us do your budgeting for you!