You can love budgeting, or you can hate it, ultimately it doesn’t matter. Budgeting is essential to the success of your business.

• Should I hire another employee?

• Should I buy this piece of equipment?

• Should I lease or buy outright?

• Do I need to put my prices up?

• Should I buy this business?

These are all very common questions and ones that we receive daily. Surprisingly, the first step to finding the answer is always the same:

Review your budget and understand the implications for your business.

And, lucky for you, with the new financial year about to kick in, now is the best time to be thinking about a budget for the year ahead.

Why is budgeting so important for your business?

Setting an annual budget helps you intimately understand your business and make informed financial decisions.

To get it right you need to deep dive into all the key drivers that impact profit. Once you understand this, you can make informed decisions that will bring positive change.

For example, you own a trades business, and you want to know how much you should increase your charge-out rate so that you can cover the pay rises of your staff. The key driver in a trades-based business is chargeable hours (productivity), if you don’t know how productive your team currently is, it is very difficult to answer that question. But if you have the data and a budget then it makes this question very easy to answer.

Where to start with your business budget

1. Work out what the key drivers for your business are.

For example, a retail store needs to know the number of customers per day and basket size, an architect needs to know their productive hours, and a restaurant needs to know their wage % and sales

2. Look at your business overheads.

Your fixed costs are important, you generally find that they can creep up over time if you don’t keep an eye on them. Software subscriptions are a classic example of this as they are easy to turn on and forget about.

3. Review last year's budget and financials.

Use the prior year as a logic check to ensure that you are setting logical targets for the year following.

Don’t just set and forget your business budget

Once you have set a budget for the year the most important thing is to track it on a quarterly basis at a minimum. The best thing about having a budget is that it gives you the ability to pick up on things both positive and negative before it’s too late. If something is not going well and you are not hitting your targets, you can get onto the problem right away instead of six months later when you are having cashflow issues. If things are going well, it gives you the chance to understand why and capitalise on it.

Use budgeting systems and tools to make life easy

There are some great tools out there that can connect to your accounting system to help you set a budget as well as report regularly. Having a great digital ecosystem in place means that you can not only track the key drivers in the business, but also easily review progress on a regular basis.

What next?

Setting your budget up right from the beginning can mean the difference between growth and struggle for your business this year. Working with an advisor, who has the experience and expertise across many different businesses, can give you the clarity that you’re on the right track with your business, and budget.

Reach out to a Business Advisor today to gain a deeper understanding of your business and start the next financial year with confidence.

The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex Group Limited.

The title 'Partner' conveys that the person is a senior member within their respective division and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is external audit, conducted via the Crowe Australasia external audit division and Unison SMSF Audit. All other professional services offered by Findex Group Limited are conducted by a privately-owned organisation and/or its subsidiaries