Advivo Business Advisors and Accountants outlines five tips to keep in mind when creating a budget for your business or reviewing your current budget.
Setting a budget is essential for any business to effectively allocate funds, as well as ensure you are not spending more than is responsible for your income. Creating a budget encompassing all facets of your business can be complicated and time consuming, so we have outlined some tips to help you get started.
Review your last 12 months.
An effective and sensible place for established businesses to start when planning a budget is to review the last 12 months. While doing this, you should go through each line item in your costs from the previous financial year – what are you spending and why? If you have found that your previous year did not reach your expectations when comparing costs and profits, consider making adjustments to your budget moving forward.
Review your current regular payments and subscriptions.
Businesses often spend a lot of money on various programs, subscriptions and regular payments from third parties. This is often a necessity, however, if left unmonitored, you could be spending much more money than expected on these payments. Some Australian businesses have been found to overspend on overhead costs by as much as 20%. Thus, it is worth reviewing the programs you are using and deciding whether you are paying for obsolete services, or if you are paying for a higher level of service than is required by your business. If so, talk to your providers about finding a better fit for your business’s needs.
Leave yourself wriggle room.
Unfortunately, prices are always increasing for services and resources that are required by businesses to function. Therefore, you should keep in mind that your providers will likely increase their prices incrementally over time, so some extra finances should be allocated and planned to cover these increasing costs. Again, it is a great idea to review your spending from previous years to compare how costs have increased, and then adjust your budget accordingly.
Research industry standards.
To create an effective budget for your business, you should not just be looking inward. It can be incredibly insightful and helpful to review how other businesses are budgeting their costs. Thus, we strongly recommend conducting some research into industry standards that are relevant to your business. By doing this, you will be able to establish benchmarks to work towards in terms of where you are spending your money, and how much you are spending.
Review your existing platforms to see if they offer new services.
Whether it’s your accounting software or your email platform, technology companies are always adding new additions and offers to their services. Thus, it is important to periodically review your third-party platforms to see if there are any new additions that could potentially help your business, or replace an existing platform. For instance, you may decide to move your business to Microsoft Teams, which is often included in your Microsoft Office subscription, removing the need to pay for an additional subscription to Zoom.