Let’s face it, building and growing your small business is both exciting and nerve-racking. On the one hand, nothing compares to seeing something you’ve built on your own succeed. On the other, you always have to be on top of everything, such as your Budget, Cash Flow Plan or Profit Plan. You must also be able to adjust your action plan when things don’t go as you want them to. 

This is why planning is crucial, especially for sole traders and small business owners. As you’re wearing many hats, a plan guides and directs you to ensure you’re on track with your business goals. 

One thing you have to prepare for is your business budget. A detailed budget plan helps you move your business forward. It could also allow you to consider other growth opportunities.

Why Prepare a Budget

Your budget helps you track your business’s financial health. It gives you — and future investors— an overview of your business finances. A business budget shows your long-term goals and essential information on the current situation of your finances. 

Without one, you run the risk of overspending and not having enough fund for crucial business activities and items. 

When you have a budget in place, you’d be able to: 

1. Pinpoint when and where to cut spending in your business
2. Decide when you can hire additional employees
3. Make confident financial decisions 
4. Re-invest money in your business 
5. Apply for loans or raise funding through investors 

Budgeting Vs. Forecasting 

Some entrepreneurs are confused between budgeting and forecasting. While they may seem similar, these two business financial activities have key differences and functions. 

Budgeting quantifies your business goals. It shows you in numbers your expected results and the financial position you want to be in. Furthermore, it shows the kind of cash flow you want to have within a specific period. 

Forecasting provides an estimate of what you can expect to happen. It gives you a roadmap based on factors like historical data and business performance. Forecasting also lets you know where your business is heading and whether you’re moving in the right direction. 

You can think of a budget plan as a tactical tool for managing your business operations. A forecast, on the other hand, is a strategic tool for monitoring business growth. 

Tools and Apps for Budget Planning

When it comes to apps and tools for budget planning, you’ll find hundreds of options online. The most important question is “how do you choose budget planning tools and apps for your business?” 

First, it’s essential to take stock of the current apps and tools you’re using for bookkeeping and accounting. Then, think about your business’s bookkeeping and accounting processes. 

When choosing tools and apps for budget planning, remember that “fancy” doesn’t always mean a tool or app is right for you. 

We found that what many small business owners and sole traders need is an easy-to-use tool that doesn’t overwhelm them. 

Some bookkeeping and accounting apps we recommend and love using are: 

• Wave — for solopreneurs and start-up businesses 
  • Rounded —for entrepreneurs who are in the service industries
  • Quickbooks Online — for small business owners who are on a budget 
  • Xero — for small and medium businesses 
  • MYOB — for small and medium businesses

Would you like to use any of these apps in your bookkeeping and accounting process? We can help you integrate them in your business. We can also help you choose the right one that’s perfect for your business needs. 

How to Develop Your Budget

Now that you understand the importance of creating a budget for your business and available tools you could use, you’re ready to start creating your budget. 

Create Your Budget

When creating a budget for your business, you must first decide on the following factors: 

• Timeframe — You may choose to set a business budget monthly, quarterly, or even annually. It all depends on your business needs. 
• Costs — Your costs include your fixed, variable, and one-time expenses. 
  • Fixed costs are expenses that don’t often change, such as rent, insurance, and salary. 
  • Variable costs are expenses that may change regularly, such as your utilities and direct materials costs. 
  • One-time spends or expenses are costs that happen less frequently than variable costs. 
• Expected Business Income — Create a list of all your income sources and how much income each source should bring every month. It will give you a clear picture of your expected monthly income. 

Prepare Your Budget 

Once you got all information mentioned above, you can now decide on a business budget for your chosen timeframe. 

Unfortunately, many small business owners find they need help with setting their budget. Are you unsure about how much budget you should allocate for different aspects of your business? Are you confused about how to set a budget based on your current and expected monthly income and expenses? It’s best to consult a bookkeeper or accountant. 

Before anything else, make sure your numbers are accurate and up-to-date. If they’re not, you may have problems in the long run when it comes to budget spending. 

Monitor Your Budget Progress

The best way to track your budget usage is by having a bookkeeping system. This is where your bookkeeping or budget planning apps would come handy. 

If you don’t have any tools or apps yet, you could start by creating spreadsheets for the following: 

• Balance Sheet — A balance sheet shows a summary of your capital, assets, and liabilities. It tells you how much money you have left once all costs are paid. 
• Cash Flow — Your cash flow shows the movement of money within your business. It’s vital to keep your cash flow statement as accurate and up-to-date as possible, especially if you’re looking into getting investors in the future. You’ll also need this when working with creditors. 
• Profit and Loss — Profit and Loss (P&L) provides a summary of your expenses and income over a certain period. This statement helps you evaluate your business’s performance and creates a forecast you could use to plan for business growth.

How Hay Accounting Group can Help 

Hay Accounting Group understands how stressful and overwhelming it can be to manage business finances. We were once small business owners ourselves. We have experienced the stress of growing our business and managing our books at the same time. 

We can help you build a business you love without being overwhelmed with working out your cash flow and finances. Let us handle those for you through our bespoke bookkeeping and business services. 

To get started, book a FREE chat with Jodi or send an email to [email protected] to learn how we can help you based on your needs.