PKF Australia

Accountants and Business Advisers

Tread a fine budget line

Tread a fine budget line

Posted 06 Mar 13 by Andrew Beattie

Running a successful business is challenging enough in a tough economic environment but without a plan, it's like flying with a blind fold on. Forward planning is critical to both business survival and success.

In 2012 and early 2013 businesses have been affected by factors from natural disasters to a high Australian dollar, low commodity prices, sluggish retail and a looming federal election. Right now as we sit in the middle of the "crucial third quarter", the rhythm of the local and national economy post-Christmas starts to show its true colours for the year ahead.

Your business may be facing a short-term hole in revenue. Maybe your suppliers aren't back to normal trading yet, or your customers just aren't buying. These are all day to day and unforeseen challenges of running a business.

If you've planned well, you are more likely to be in better shape to face the unexpected, and to take advantage of opportunities when they appear.

The saying 'cash is king' could not be more true in the current climate. Present trends show us that on average, businesses across the country are taking longer to pay their debts. This has a flow on effect and businesses must ensure that they have enough cash reserves to pay tax, rent, suppliers, and most importantly, staff.

For most small business owners, their long term goal is to be profitable and build their wealth. You must plan on how you are going to do this - the place to start is having a budget. Whether the budget is initially for 12 months or a short term rolling budget does not really matter - something is better than nothing to help you understand your cash flow. Eventually, you should try to look at a broader projection for say two years or more.

At a basic level, when preparing a budget, consider:

  • Your opening cash balance
  • Expected monthly income accounting for seasonality
  • Expected fixed costs e.g. rent and wages
  • Expected variable costs e.g. wages and supplier costs
  • Capital equipment requirements including leasing¬†
  • Loan repayments - minimum repayments and additional repayments if free cash exists
  • Direct and indirect tax commitments including GST, PAYG Withholding, PAYG Instalments, Fringe Benefits, Payroll and Income Taxes
  • Realistic terms of trade utilised with customers and suppliers

Ensure you can justify any assumptions when completing your budget and don't overstate what is achievable.

Finally, your budget should be a live business tool that adapts to actual results; you should regularly revisit your forecasts based on what you have actually achieved. With this kind of planning and preparation, you will definitely be in a better position to navigate your way to the results you are after.

For more information about how you can better plan ahead in your business, contact your Client Relationship Manager or one of our Business Advisory specialists.


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