Trent Innes, managing director of Xero, shares his top tips to kick off the new financial year right!
The word ‘budget’ can turn small business owners into a tailspin with the reputation of being overwhelming, complex and boring. But at the heart of it, there are just three broad sets of figures to get your head around: your profit and loss report, balance sheet and trial balance.
The new financial year is the ideal time to consider your accounts, dig out the real figures and get yourself organised. With a well-planned budget you can determine how many sales you’ll need to cover costs, figure out how much revenue you can generate to reinvest in the business and find out where you can afford to hire and grow.
You don’t have to go it alone — there are more than 25,000 qualified accountants and bookkeepers experienced across a variety of industries ready to help you.
Get your profit & loss in order
Launching into FY19, the first step is to get your profit and loss report in order. For those just starting out, your profit and loss report shows at a glance whether you’re making or losing money. To figure this out, all you need to do is subtract your expenses from your income.
If you find yourself in a position of making a loss this can be okay in certain situations, however, it’s not sustainable over the long term. One of the best steps forward is seeking professional advice.
When making a profit it’s important to not become too comfortable, so take time to ask yourself whether you can drive bigger profits by investing in the business? Save money by paying down debts quicker? Or hold some savings aside to ride up future revenue dips?
No matter your business’s current profit or loss situation, it’s important not to overlook the cost of doing business, so be sure to keep your eye on depreciating business assets, overheads, payroll and debt repayments.
Re-evaluate your balance sheet
Your balance sheet showcases your business worth, so when it comes to the crunch, your balance sheet needs to be in tip-top shape.
Your balance sheet also shows what you own from your business tangible assets, cash in the bank and unpaid invoices. On the other hand, it highlights your liabilities such as unpaid expenses, taxes and loans.
In the end, your balance sheet is like a small business bible – it reveals the true worth of your business in the light of day.
Think what if?
You can start playing with the numbers once you have a basic small business budget. Ask yourself: what if sales increase by 10%? What if you lose your biggest client? What if you negotiate lower rent?
It’s worth trying dozens of scenarios, you might find that you have the potential to hire more staff or experimenting with new product ideas. You don’t have to limit yourself to one budget, you can create several with multiple outcomes and determine which budget fits your situation.
New financial year, new small business budget
Get your finances sorted this new financial year by tidying your bookkeeping and creating a strategic budget. By being well-organised and prepared, you’ll open possibilities for your business from creating stretch growth goals, seeking new finance opportunities and generating confidence in your business progression.
You’ll be surprised by the relief a well-planned budget creates, it’s like turning on a light in a dark room, so you can clearly see the path ahead.
Just remember your budget is a work in progress. As the year develops you can make changes based on your situation to find the best solution for your business.