Budgets.. now there’s a plan

A budget is the measurement of money coming in and going out.  Whether it is your personal funds or business ones, it pays to have a budget.

One the biggest pain points when running your own business is managing the money. Where does it all go?  How do I make sure there is enough to cover my business expenses, and my personal ones?

Do you know you need two budgets instead of just one?

Budgeting can:

  • ease the your cashflow restraints
  • reduce financial stress in your life
  • makes it simpler to anticipate costs and avoid nasty surprises

Personal Budget

You will need to work out what your expenses are, then how much income you need to cover those.  When I was on a really tight budget with young kiddies, this is what I did..
Personal Budget
Step 1: Work out your expenses
I opened a separate bills account.  This account was for our fixed expenses – those expenses  that I had to pay like mortgage payments, power, rates, car registration and WOF, water rates, insurance etc.  These I would then break down to what those costs were as a weekly amount.   Mortgage paid fortnightly, half it.  Car rego and 2 WOF per year, divide it by 52 (number of weeks in a year).  Rates quarterly, divide it by 13 (number of weeks in a quarter).  Once you work out your actual fixed costs, this is what I would transfer to my bills account every week.  When it came time to pay for those things, the money was there to cover it.   I would also set up automatic payments from that account for those fixed costs.
Step 2: Work out what your potential costs and savings are
I then had some separate bank accounts (savings type account) for potential costs and savings and would do the same thing for this as above.  Things like vehicle repairs, house maintenance, savings for travel etc (these could be in  separate bank accounts. You could also include things like savings for gifts and Christmas, clothing budgeting etc)
In the budget sample above I need to be putting a total of $876.54 away every week to cover these costs.
Step 3: Add in those essential weekly expenses
Next step, all other expenses.  This will include food and fuel, and any other expenses you have not included above.
In my example I have total costs of $1206.54 per week.
Step 4: Income
Income is then worked out from all sources, eg your partners income if they are working for salary or wages, income from investments or government assistance and income from your business.  Or, this may tell you how much income you need to have from your business on a weekly basis which leads into business budgeting.
Personal Budget
Step 5: One off purchases
Creating a budget means you have the ability to factor in one off purchases better than ever before. While some of these items may come up unexpectedly, like the purchase of a computer, others can be budgeted for months in advance.  Some examples

  • Computer
  • Furniture
  • Vehicles

budget graphic

Business Budget

A basic business budget can be done the same way as for your personal expenses.
There are many benefits of having a business budget
These include being better able to:

  • manage your money effectively
  • allocate appropriate resources to projects
  • monitor performance
  • meet your objectives
  • improve decision-making
  • identify problems before they occur – such as the need to raise finance or cash flow difficulties
  • plan for the future
  • increase staff motivation
  • ensure there are enough funds to pay yourself to fund your personal budget

A sample budget business-budget_12months
Your business may have different types of expenses Don’t forget to add in how much you need to pay yourself, and include an allowance for tax and ACC levies.
Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first (if you dont already have one). Its all about planning for business success.
Once you’ve got figures for income and expenditure, you can work out how much money you’re making. You can look at costs and work out ways to reduce them. You can see if you are likely to have cash flow problems, giving yourself time to do something about them.
When you’ve made a budget, you should stick to it as far as possible, but review and revise it as needed. Successful businesses often have a rolling budget, so that they are continually budgeting, e.g. for a year in advance.
Creating a monthly business budget may seem overwhelming – dont be afraid.  It will help you have some direction for that ship you are the captain of.  Give it a go!  It’s an essential element that gives you the ability to make sound financial decisions so your business can stay ‘ONTRACK’ and profitable.
If you think you might like some help with that, just let us know by emailing us at info@ontrackbookkeeping.co.nz

DiCE <3

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