Can't pay salaries at the end of the month? Here's how to get your cashflow under control
Budgeting is one of the most powerful financial tools available to any small business owner.
Put simply, maintaining a good short and long term financial plan lets you control your cash flow instead of having it control you.
So ensure your business is always profitable. With the financial budget you can plan for the future, stay in control of costs, and make better financial and business decisions.
Read on as I'll show you how to draft your financial budget in three easy steps.
*********Recommended for you*********
Ten budget templates to forecast and manage your company's costs
You can use them individually or while you create your operating budget. You'll draw figures from these budgets so you can keep control of costs and maximise profit. Each budget chapter comes with a free Excel budget template for you to customise and use straight away.
Find out more here…
Three easy steps to create your budget
Start your financial budget based on assumptions. These assumptions start with your strategic goals and plans.
Based on these assumptions, and using last year's figures as a base, we can now construct the first draft of our budget.
Baker Bob generated sales of R 764 000, at a profit (before tax) of R 189 000 last year and he is hoping to increase his profit to at least R 250 000 next year. That represents an increase of 32.2% (
250 000 - 189 000 / 189 000 x100 ).
After careful consideration, and consulting his staff and financial advisors, he makes the following assumptions:
i. Selling prices can be increased by at least 7%.
ii. We will be able to maintain the same gross profit percentage as last year (last year was 60%).
iii. Operating expenses, which include salaries as the biggest expense, will increase by 10%.
iv. It will be necessary to hire another mixing assistant and a driver, at total annual salaries of R96 000.
v. A huge marketing effort is going to be needed to increase sales to the level where we can make a R250 000 profit. We will have to take out regular adverts in the local newspapers, which will cost us at least R50 000 over the next year.
Coordinate the financial budget with your strategic goals and other considerations. For example, ask what else you can do to achieve the objectives.
Bob needs to get his finance team together with the marketing team and the production team and see what they can change to make the budget work within the goals set by management.
This was arranged, and after a weekend at an exclusive bush lodge, the teams' representatives come back to Bob with the following proposals:
i. Instead of hiring another mixing assistant, the current mixer will work one extra shift a week, which will result in a cost saving of R32 000 on the first budget.
ii. Run one series of radio adverts. It'll cost another R55 000 but will boost sales to R1 200 000.
iii. The production department's happy they'll be able to cope with the extra production on that basis
Need to draw up correct financial statements for your business?
Here's the one complete guide
you need to compile 100% legally compliant income statements and balance sheets
Control your financial budget. To make your financial budget useful, break it into manageable pieces.
Bob decides to create monthly financial budgets. He reckons it'll also be useful to do weekly financial budgets and even break some line items down into their components. It's very difficult to see where the problem is if you have a budget of R299 200 for operating expenses.
You need to know exactly how much is allowed for each category of expense (advertising, bad debts, bank charges, etc. in the previous example) so you can see exactly where things went wrong and take the appropriate corrective action. He therefore splits the line for operating expenses into individual expenses.
Don't let your business be another fraud statistic... Discover how to protect your business from being crippled by SA's 9 most common fraud schemes today...