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  • Writer's pictureMarc van Mourik

Budgeting and cash flow

Updated: 4 days ago

By Marc van Mourik, CPA

Man holding tabled overlaid with graphs and lines joining starbursts

Whilst a lot of people get interested when they hear the words “cash flow”, a lot tend to cringe when hearing the word “budget”. What a lot of people don’t realize though, is that without a solid budget plan, trying to get an accurate cash flow forecast is almost impossible.


Why is budgeting important for your business?


So why do we budget? Hate surprises? That’s why we budget.


The two main purposes of preparing a budget, is to make sure your business is generating the revenue that you expect it to, and to make sure that your expenses aren’t getting out of control. It also means that when you get that large bill, you have already planned for it. Having put the money aside so that you avoid the stress and last-minute panic of trying to work out how to fund the bill.


Think of your budget as a blueprint for business success. It will help you to anticipate times where cash will be tight and help you plan your resources so that your business runs smoothly.


How often should you review your budget?


It's important to remember that a budget is a guide, and it is not set in stone! I encourage you to look at your budget regularly, at least monthly. Updating it with any new information which then means your budget becomes more accurate as time progresses.


Regular budget reviews allow you to address any unexpected variances. Or at least you will be aware of these variations when seeing your end of year financial results. Therefore, no unpleasant surprises.


By regularly checking your budget you have a chance to react and adjust your business accordingly. Some examples.

  • Not hitting the sales that you are expecting? Is there a reason for that and is there a way for you to get the sales up to the level that you are wanting?

    • If not, you may need to adjust your spending while revenue is down

  • Have you had price increases from your suppliers or have wages costs been higher than you expected?

    • You may need to review the prices of your products/services and adjust them better cover your costs


These regular reviews give you the opportunity to make adjustments within your business and avoid surprises. Regular budget reviews also put you on the front foot for managing your business finances and controlling profitability.


What are the benefits of budgeting?


The biggest benefit of budgeting is the peace of mind that you will have regarding your financial position. You will be in control of your financial situation and well-prepared to make informed business decisions.


With a budget in place, you are equipped to set new business goals, like investing to improve your equipment or expand your workforce.


Budgets also help business owners to reduce their risks. You can allocate funds for emergencies and identify potential pitfalls to mitigate against unexpected setbacks.


How does budgeting help my cash flow?


Having a budget in place will make your cash flow forecast a lot more reliable. Cash flow forecasts are important as they warn you if the business might be starting to run lean on funds. This gives you time to plan if you need alternative funding sources to keep operating. The added advantage is that you are not scrambling at the last minute to get finance approved. Potentially ending up with more expensive funding than would have been the case if you had put something in place earlier.


On the positive side, if you are benefitting from a cash surplus in the business, it might be time to look at purchasing those assets that you have had your eye on to make your life easier. Or look at paying dividends to shareholders.


8 Essential items to include in your budgeting and cash flow forecasts


I recommend you include at least the following in your budgeting to get the best results for your business:

  1. Expected revenue: How much are you expecting to receive from the sale of your goods or services.

  2. Materials: The better you track all the expenses involved in producing your goods or services, the more accurately you can plan.

  3. Overhead Expenses: Rent, utilities, insurances and registrations.

  4. Wages and Salaries: Remember to include your own salary and any subcontractor or temporary staff wages.

  5. Tools and Equipment: Along with the usual costs, also budget for upgrades and replacements.

  6. Marketing and Advertising: Costs of promoting your goods or services can quickly add up.

  7. Emergency Fund: I always recommend that businesses set aside funds as a buffer for unexpected costs.

  8. Taxes and employment: The ATO continues to crack down on businesses who are not meeting their tax and employment obligations. Budgeting for your tax expenses means you’re less likely to get caught short!


How can ABA help you with your budgeting and cash flow?


As the old saying goes “knowledge is power”. Having an understanding of how the business (or your life) is tracking versus how you expected it to go, lets you know if things aren’t going to plan and gives you a chance to spot the deviation quickly and act accordingly to get it headed back in the direction that you wanted.


At ABA Advice Beyond Accounting budgeting and cash flow support is included in our service packages. Never done a budget before? No problem. We will coach and guide you through the process. It’s a lot simpler than you think. The hardest part is getting started! Already doing a budget and want to take it to the next level? We can help you with that too. Contact the ABA team and we will help you get the most value from your budget!

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