It’s your financial planner – estimating your income and expenditure over a set period of time
It’s your financial early warning system – identifying when your expenses are climbing or revenue is falling
It’s your diagnostics tool – spotting opportunities for optimisation
Want in? Then let’s get into it.
How to set a budget
We broke down how to set one in more detail in a previous article, but in summary it’s as simple as planning the coming year based on your history of income and expenditure. From here, you can review each month’s performance against your historical results – spotting improvements and causes for concern. So, you’ll have to think about the historical information you’re basing your budget on:
Are you starting out in business for the first time?
Then you’re unlikely to have past costs or sales to use as a baseline. You’ll need to do some research and figure out what your costs are likely to be, as well as likely sales figures. If you’re in this boat, it’s important not to give yourself arbitrary, hard-to-reach targets. You’ll likely feel disappointed if you don’t reach them.
Is the year ahead likely to be “business-as-usual”?
If so, you may be able to safely assume your income and expenses will safely mirror last year. You can use them to make estimations, while slightly increasing your costs to reflect inflation.
Do you have big changes on the way?
If you’re planning to introduce a new product line or shift your premises to a new location, your costs are certainly going to change, and maybe your income will, too. Factor in these new costs or income adjustments.
What’s not in a budget
Your budget strictly focuses on your income and expenses – the factors impacting the profit you make. It doesn’t include all of the items going in and out of your bank account (that’s what a cash flow forecast is for). You can learn about cash-flows over here.
The below examples will help to clarify this:
Any intentions to buy assets, like vehicles, in the coming year don’t make it into your budget
Your GST payments don’t
Repaying the principle on your loan doesn’t go in, but any interest repayments do
Reporting against your budget
After building your budget, it’s helpful to enter it into a tool, like Xero. You can then track each month’s figures against your forecast.
In addition, you can use the Wealth section of my.Beany to see how your sales or net profit are tracking against your budget.
Who are Beany?
We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world.
We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.
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I'm the CPO of Beany where my job is to help craft the best software for our clients and accountants. I'm an ex-big 4 CA and a technology enthusiast, based in Nelson where I live with my husband and two young children.