• 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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And this is the right time to master your bookkeeping skills so that you can optimise your finances earlier on.

Bookkeeping may seem difficult initially, but remember that it contributes to your business health. So devote specific time every week for the task. Here are some of the most common issues that you may face when managing bookkeeping.

Accounts Receivable and Collections

What process do you follow from generating invoices through to collecting the payments?  This process can be quite complex, and so often leads to further problems. Having invoices created and sent regularly, and preferably when the goods or services are provided will ensure that everything is recorded and will enable cash flow comes in regularly.

As well, you need a process to follow up outstanding invoices on a regular basis.  Too many businesses do not do this and find them self in financial difficulty as a result.  Better still, implement an automated process that will send out email reminders automatically and you will find most customers will pay fairly quickly, leaving you to call only those who still don’t respond.  It will save you hours each month.

By doing this, funds will be there for you to pay your expenses, meet your business financial obligations and to help grow your business.

Cash Flow

Cash flow problems can start when you combine business and personal finances. Many small business owners use the same account for both, resulting in a tangled mess that is too hard to clean up.  Drawings are made as needed for personal expenses and are then not available when required for expense payments and for meeting government obligations like tax.

By separating your business and personal accounts from the very first day, you’ll be saving yourself from plenty of trouble down the road.

Paperwork

Tracking receipts and storing them properly is one of the biggest problems that you may face as a business owner.  Make sure you compile them in an organised way and store them somewhere safe as many accounting aspects rely on tracking expenses accurately.

A good accounting software can help you with this task. As far as storage is concerned, you can do it offline but doing it over the cloud is more preferable because of easy access and greater security.  Take a photo or scan any paper invoices or receipts received and upload them to the transaction in your accounting ledger or save on a cloud storage facility like Google Drive or Dropbox.

Payroll

Managing payroll is a complex process, and if you make mistakes, you can be penalised by government.  Payroll management isn’t only about salaries, but also includes taxes, superannuation, bonuses, benefits, and other areas.  Find yourself a specialist in payroll to assist you in meeting your obligations.

Closing your Accounts

Ideally, you should close your accounts every month so that important figures and financial metrics can be obtained.  By delaying this you won’t be able to report timely information, gain useful insights and make effective decisions.  You also run the risk of recording transactions in a prior period where you have already reported externally, particularly to government agencies.  Closing your accounts every single month will avert this. Sounds complex? Then seek the advice of a professional accountant.

Visit our website www.higherpurposeaccounting.com.au for more information.

The post The Most Common Bookkeeping Challenges Faced by Small Businesses appeared first on Higher Purpose Accounting.

If you are just starting out, you may be able to manage, but do consult a qualified accountant about the best structure to have, the internal financial and operational procedures for your business and how to comply with government obligations. You should also think about automating accounting with widely available software like Xero, QuickBooks, Reckon One or MYOB. Go through the features and the subscription pricing, and then decide the best software which serves your business needs and is within your budget.

So, let’s take a look at some of the most effective ways to sort out your small business finances.

Separate personal and business expenses right from the start
One of the biggest mistakes that new entrepreneurs make is mingling their personal and business finances. Never do this, even if it’s just the first day or your business. Keep your business and personal finances separate. Open a separate back account for your company and have a separate credit or debit card for your business.
Later on, when you sit down and reconcile your expenses, you’ll be extremely glad that you kept the two areas separate.

Track your expenses thoroughly
Label, and then categorise your expenses, keeping a critical check on your cash flows. Also try to use your business credit or debit cards for most of the purchases. Managing paper receipts is difficult but when you use payment cards, all transactions records are electronically. If you use accounting software, you can have a direct bank feed to the software or import all these records into the software, saving you and your accountant/bookkeeper time.

Plus, the more you use your credit cards, the greater rewards you earn. Many loyalty programs offer cash back, which can benefit savings.

Still there can be cases when cash would be your only option. Make sure that you take pictures of all paper receipts them and attach them to the transaction in your accounting software.

Take out time to update your books
As much as you feel like delaying bookkeeping, don’t do it. Take out time, every single, week and get all your records in order. Set aside a time for this, and then be sure to follow it. You may even get some help from a bookkeeper.

Look out for labour costs
Employee salaries are often the biggest expense of small businesses. So, ensure you record superannuation, PAYG Withholding, overtime and other details carefully. Using accounting software with a dedicated payroll module can help you here.

Look for help from the pros
The best piece of advice that we have to offer. Hiring a qualified accountant and/or bookkeeper may seem like and added expense, but it is actually worthwhile having them when they sort out and put your finances in order.

Get in touch with Higher Purpose Accounting to see how we can help you with these areas.

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