Author: Greg Taylor

Business Finance: Why Budget?

In his weekly business finance post our CFO Greg Taylor looks at last week's Federal Budget as a reminder of the importance of having a budget for your business.  

Last week’s Federal Budget didn’t have much in the way of new, specific initiatives for small business. There was money to create Industry Innovation Precincts and $378 million to “stimulate private sector investment in entrepreneurial small to medium enterprises”. Businesses will have to pay their employees 0.25% in extra super from 1 July this year and there is no other tax relief.

I’ll stay out of the politics of the Budget and whether it was a good or bad one. I thought we should look at why it is important that governments, businesses (and individuals and families for that matter) have one.

Budgets help you plan what you expect to spend (expenditure) against the money you plan to bring in (revenue or income). They help you to allocate funds for items that you know are going to come up over the year. If your expenditure is less than revenue you are going to make a profit (have a budget surplus). If the reverse applies (a budget deficit) then you need to look at options to fund that difference, whether it be using existing savings or borrowing. Continued deficits are an indicator that your business model either needs to change or is not viable.

Depending upon the nature and size of the business, you should do a budget at least yearly and continue to monitor your performance against this during the year. Don’t be afraid to reforecast more frequently (often monthly). It can give you a more realistic measure of where your business is heading and can help you to avoid problems before they occur. You can predict figures based on the past and current trends in your financial statements. This helps you prepare a more accurate budget.

Lenders often ask to see both your budget and forecasts when they are assessing your application for finance.

There are online and published tools to help you to set up a budget and forecasts. You can also get help from your business advisor or accountant.

Please share your budgeting tips below.

This blog is from Greg’s regular business finance column in the Post newspaper.