Setting a budget and sticking to it is key for the success of your small business. Overspending can result in poor cash flow health which is the biggest cause of business failure in the first 3 years of business.
Start by setting yourself a business plan. You should do this before you even start your business. Many business owners don’t realise the importance of this. Starting as you mean to go on and having key objectives and goals in place will help you map out your business strategy which will help you to set your financial budget.
Review your spending month on month and set yourself a realistic budget. One which allows you to save, pay yourself and your suppliers and still have a reasonable amount of money in the bank.
What steps can I put in place to ensure I stick to budget?
Keep your business and personal finances separate
All companies need a separate bank account. This business bank account will solely be used for business transactions. Keeping your business and personal finances separately not only helps you to have a clear picture of your finances but it’s also much easier to manage your bookkeeping.
Record all expenses
In order to claim tax deductible expenses you must keep evidence of every transaction. Receipts and invoices are best stored in the cloud for safe keeping. We use Dext for all of our clients. It’s really easy for you to upload receipts as you spend using the app. This way no paperwork goes missing and you can be sure to claim for every transaction.
By integrating Dext with Xero you can reconcile your accounts as the receipts and invoices will pull through to Xero from Dext, so that you can match the bills against the transactions in your bank account. By doing this you can see how much you are spending each month. This will also identify any areas in which you are overspending, or purchasing unnecessary items.
Understand your cash flow
Knowing what money you have coming in and what’s leaving your bank account each month means you have a clearer understanding of your financial position. If there are particular times of the month when cash flow is low then look for ways to improve this by amending payment dates and negotiating with suppliers.
Invoice your clients on time and be sure to chase late payments to keep a steady flow of income coming into your business.
Have a contingency plan
Every budget should allow for contingencies. You want to stick to your budget as much as possible. If you go over budget one month try your best to be under budget the following month in order to compensate for your overspend. Having a contingency in place for the unexpected is wise so that your cash flow is not impacted.
Don’t forget to save for tax and VAT
Ensure you allow for saving for your tax and VAT bills, you don’t want any nasty surprises that could hinder your cash flow.
Seek support
If you struggle to set budgets or stick to them why not get in touch with us? Hiring a professional bookkeeper will mean you have better control of your finances. With our insightful reports we can help you to identify areas where you are overspending and get you in a better financial position for this time next year.
We’d love to hear from you!
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