• Why should I bother with a budget or cash flow forecast?
• How can I make sure there's enough money to pay my staff and myself?
• What's the right price for my product or service?

Businesses, particularly small ones can really struggle with managing the financial aspects especially meeting compliance deadlines for taxation and superannuation. 

Do you want to be in the position of having a tax debt?  Or not being able to pay your staff on time?

Budgeting (and cash flow forecasting) can be the difference between growth and sustainability or chaos and failure.  But where do you start? What do you need to include in a budget and cash flow forecast?

Before I answer these questions, let’s look at what each of these is in more detail.

What are budgets & cash flow forecasts?

A budget is an estimation of revenue and expenses over a specified future period and a means to track your progress.  These are usually created each year and referred to each month.   A cash flow forecast shows money coming in and out and the timing of it.  For example, you may invoice for one month but receive payment in the next month.  It is generally reviewed and adjusted on a weekly basis.

Why do I need them?

These tools keep us organised and give us something to aim for.  Each of these provides us with a framework to work with and help us avert issues like a cash deficit.   They also allow us to take advantage of new opportunities as these appear enabling us to grow our business and our wealth.

Banks, lenders and grant providers will also request you provide a budget and cash flow forecast when applying for funds to support working capital, purchasing assets and for project grant applications.

How do I put them together?

Putting together a budget and a cash flow forecast can seem complicated and daunting. But it really doesn’t have to be.  You just need to have a framework, some boundaries to work within and a template to complete.  Here’s some things you can do:

• Determine the number, frequency, and pricing of your offerings.
• Identify various expenses, including staff, rent, subscriptions, travel, utilities, and office-related costs.
• Break down your cash flow forecast on a weekly basis, while outlining your budget on a monthly and yearly scale.
• Create a checklist for all essential elements and document the assumptions you've relied on.
• Utilise a pre-designed budget and cash flow forecast template for enhanced organisation and efficiency.

- enter all income and expense categories for the year by month.  Total this by category, month and year.
- You may need to have separate sheets showing how the monthly figures come together (eg: x number of services @ $Y price each)

Now, how do I use them?

There’s not much point putting together a budget and cash flow forecast unless you are going to do something with them.  You’re just wasting your time!

So, how do I use each of these finely crafted documents?

Budget

With the budget you would want to:
- Add the budget to your accounting software
- Run a Profit and Loss report each month
- Compare your budget to the actual outcomes

Now you can then adjust for current and projected future outcomes.

Cash flow forecast

In the cash flow forecast you need to:
- review your cash coming and out of your bank account weekly
- compare this to the previous week’s forecast
- update your bank account opening balance for the week
- adjust your forecast for cash coming in and out for current and future weeks

From my experience, this can be a quite a challenge for many businesses, particularly smaller ones and not-for-profits. That’s why I created an online course with a simple but structured approach to budgeting.

The course takes participants through:
- understanding why we need a budget and what we need to include
- creating a robust budget and using it to make decisions
- how to monitor progress and cash flows in the business 

It’s quite comprehensive. So, participants can get assistance from me to plan the budget and review it as an extra to the course.

I always say that without a budget and cash flow forecast, you are doing things blindly!  So, will a budget and cash flow forecast save your business?  I truly believe it will!

So, what can I do now?

Book a 15 min chat to discuss how the Budgeting online course will help you create a budget that works for your business.

You’ll determine what revenue you’ll need to pay your staff, pay yourself and pay your expenses.  And, you’ll have cash flow to grow your business!  Click the link below to get started!

https://bit.ly/HPA15mCall

The post Will a budget and cash flow forecast save your business? appeared first on Higher Purpose Accounting.

Separate personal and business finances completely

That dinner you had wasn’t part of a meeting with client, yet you used your business card. Those computers that you bought were meant for work, but you ended up using your personal payment card. Yeah, you can pay yourself back from your business or pay back to your business from your personal account. But DON’T!

It’s that simple.

Personal and business finances should never ever be mixed together whatever the circumstances may be. Generally, when you spend on your business, you should record a transaction. If you don’t or if you combine personal and business finances, then things can become a pain pretty soon and it will be hell for you to track down all the expenses.

So, separate the two accounts right from the start and you’ll be saving yourself a good amount of time and pain in the future. And let’s not forget that this will be a huge help when you lodge your tax return.

Organise yourself!

For organising your finances that is. Spend around 15 to 30 minutes every week and the only thing that you should be doing during this time is to sort out your finances and make sure that they are in proper order.

And by the way, this little activity can even help you gain insights especially if you make good use of your accounting system.

Track salaries

Yes, there is a need to mention this separately. Whether you are the only one working or have a team of staff, track costs associated with salaries, benefits, leaves, overtime and other relevant expenses separately.  This will let you know if your labour costs are within the budget or outside it. Accordingly, you can decide if you should spend more on incentivising your team or if you need to cut down on some benefits.

Consult the professionals

We mentioned this at the start of our discussion, but let’s talk about it again for emphasis. Accountants are a vital part of any team.  They are an expert in maintaining accounting and finance systems and have done it for so many businesses just like yours. They know exactly what works, what doesn’t and which deductions you should utilise.

Agreed, you may want to refrain from hiring an accountant for anything other than tax and other compliance areas, but trust us, bring a professional accountant and trusted advisor on board and the improvements made will more than compensate for the investment!

So, there you have it - Separate, Track, Organise and Consult.  Then you will be well on your way to manging your finances effectively.

Higher Purpose Accounting can help you in setting up your accounting system and managing your finances. Visit our website or book in a call for more information.

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History shows many business owners delay working with professional accountants as much as they can.  They don’t see the value of investing in an accountant, only thinking of it as an expense.  But the monetary saving costs them many hours of their time and eventually thousands and thousands.

So, are you now convinced that you should work with an accountant? If your answer is still no, let us walk you through some situations in which professional accounting advice can be valuable.

Writing your business plan

Are you in the process of developing your business plan?  Bring in an accountant on board and they’ll help you improve the plan. Accountants can use advanced software to predict the financial position of your business a couple of years down the road and also prepare various reports that give you valuable insights, allowing you to make key decisions.

Hiring accountants earlier on lets you utilise their financial knowledge and experience right from the start, helping you save time and money. You will also learn some critical things as well!

When determining the legal structure of your business

Every business has a different legal structure depending on various factors. The most common types include limited liability partnerships, limited liability corporations, sole proprietor and so on.  An accountant can explain each type in detail, along with associated legal implications so that you can select the one that best fits your needs.

Helping with finances

Business management appears too complex during the start-up phase. If you feel that you, spending too much or losing control over your finances, then reach out to an accountant and they’ll help you optimise them. They’ll evaluate your current situation, identifying areas where you’re overspending or can generate revenue and put a system in place for you to achieve it.

Accountants keep tabs on key metrics like debtor days, cash flow timings, inventory turnover, gross profit margin and return on assets, and identify revenue and expense drivers, providing you a good picture of your business performance. Moreover, they use advanced accounting software and add-ons that automate many tasks at your end and help you improve collaboration within your team.  If the software is in the cloud, you enjoy greater accessibility and security.

Focusing on your business

Running your own businesses means handling many different operations that fall under different areas. When you start spending too much time on these critical issues, you lose track or your basic purpose while also wasting your resources, as you cannot be expected to be an expert in all these areas.

But when you outsource operations like financial accounting and financial management, you get peace of mind and more time on your hands to deal with the bigger and more important issues in your business.

So, hand over your accounting tasks to an award-winning business like Higher Purpose Accounting. We’ll quickly set up a proper system for your business and take of other steps crucial to business stability and growth.

The post When Should Small Businesses Turn to Accountants for Help? appeared first on Higher Purpose Accounting.

Understand working capital

Do you truly understand your working capital? Working capital is your current assets minus your current liabilities and includes cash, inventory, accounts receivable and payable, payroll, loans/credit and unpaid taxes.

Now, have you decided the amount that you consider to be required? Before you do anything else, make sure that you have the answers to following questions:

• What should be your minimum inventory level?
• When do you invoice customers, how regularly and how long does it take for them to pay you?
• How much do your customers owe you? Or do you owe them any products or services for advanced payments made?
• How long does order preparation or service delivery take place, right from when you pay your suppliers to getting payments from your clients?

Have enough cash on hand

The next step is to ascertain that you have cash on hand to meet your basic expenses.  Do you have some kind of buffer in the form of a term deposit, an overdraft, revolving credit facility or even personal funds?  Having enough cash to cover 6 months operating expenses is a good buffer to call upon when unexpected times come and you need access to additional cash.  Remember, when you do this you’ll need to identify where you could generate extra sales easily and look to delay non-discretionary expenditure.

 Plan for the future

At least for this year anyway.  Predict your incoming and outgoing cash flows for the next few months. Ascertain that you have or would have enough funds through this time to keep your business running. If you can’t forecast sales, then plan your outgoing cash flows first. Now figure out the amount of income that you need for your outgoings.  That’s the target that you should have in mind.   Next year you will have more data and experience so you should be able to plan for a longer time frame.

And then plan for the month

Great, you have a yearly plan. Now let’s work on a month by month plan.  Do you have enough cash to meet all your expenses by the 20^th of this month?  Create a plan for every month from now onward, and if you’ll ever have to face a shortage, you’ll know sooner rather than later and make the necessary adjustments before issues arise that negatively affect your business.  Excel is great for this or you could use the function available in many of the cloud based accounting systems.

Review your existing systems

Analyse your existing finance and other administrative systems which are not great for many of the small businesses that we have come across. When do you invoice and do you do this regularly? How soon do you get your receivables? How do you collect – direct debit or monthly account and is follow-up automated?  What reports do you use to know what you owe to suppliers and what your customers owe to you?

Ensure your customers can pay you easily

How many payment options do you accept? Allow customers to pay you through any means that they find convenient. Accept credit cards, PayPal, EFTPOS and see if payments can be automated. Fees you incur having these are small compared to time spent chasing up outstanding amounts.

Bring in an expert from outside

The best tip that we can give you is to use professional accounting, advisory and bookkeeping services, experts who will reduce unnecessary expenses, save you time, automate your systems and optimise your finances.

If you would like to know more about any of the items mentioned in this article, please use the Higher Purpose Accounting Contact Form at:

http://www.higherpurposeaccounting.com.au/

The post Small Business: Are You Managing Your Cash Flows Effectively? appeared first on Higher Purpose Accounting.