Businesses should review their yearly financials and aim to create a budget which reflects any adjustments that need to be made.
Gaining a good understanding of your revenue is the first step that you should complete when creating a budget for the new year. Ensure you have taken all income sources into consideration and determine the revenue, not the profit. By separating this income into the past months, up to a year if possible, and using information from the previous year will provide information about seasonal patterns and changes you might need to prepare for.
Fixed costs are the simplest to take into account. These may be recurring expenses or one off-costs which you can anticipate before the year begins. These can include rent, supplies, payroll and a range of other expenses that might be unique to your business.
Variable expenses are more difficult to calculate. The data you accumulated at the first step may help with determining these costs. Although these costs won’t be identical to the previous year, they may provide some indication as to the types of variable expenses that may occur. These can include professional development or marketing costs.
Although the previous year might give some indication of anticipated costs, it is best to set aside a contingency fund for the coming year. This year and the global pandemic is an example of unexpected costs that may arise. Spending this extra money on other expenses may be tempting, but saving them for emergencies in the long term will prove beneficial.
Create a profit and loss statement which contains all the information you have gathered. This will allow you to project into the future and make educated decisions. Using your profit or loss statements, examine the trends you need to watch out for and how you can move forward using that information.
To find out more about your budget, cash flow, costs and business bench marking speak with an LT accountant. www.LT.com.au