Get clarity on your numbers for a smoother ride
As they say, money does not grow on trees and there are no magic buttons to press and have dollar bills fly out without limit.
Which is why budgeting is so important. It sounds logical, but it is a step that many shy away from and prefer not to face it. Budgeting is a sign of healthy financial literacy, and if you need a leg up at the beginning, a professional accountant can guide you to start.
Business owners never plan to fail, they fail to plan.
Budgeting simply involves creating a spending plan. It shows if you have sufficient funds to meet your obligations. Drawing up and more importantly, following a budget will help you to avoid getting into debt, and it can also help you get out of debt should that happen.
Simply put, numbers do not lie. They show you reality, and rather than see it as something severe and depressing, why not think of it as showing you possibilities, opportunities and protects you from going down a path that might be somewhat prickly. Numbers make good guides if you let them.
Budget Forecasting and Planning
So, how does one start? With a deep breath. And we can take this step by step.
1. Map out your spending plan or budget for 12 months.
This makes it easy to see which months are your 'tight' months and which ones where you´ll have some extras coming in. Then you can look for way to even out the highs and lows in your finances. It's all about making your numbers more manageable and even pleasant.
At CATS4TAX, we live and breathe numbers all the time and they are more like good friends that give us information about what's the next step to take. Get comfortable and familiar with your budget and with the habit of budgeting. You´ll find it´s a good skill to nurture from the very beginning.
2. Keep it realistic.
Planning a budget is not about letting your fantasies and daydreams run amok.
Make sure your figures are realistic, manageable and doable.
When you produce a realistic budget, you can forecast your spending for the year, and that can really help with long-term financial planning. It's the early little accumulative steps that help you eventually achieve the big goal.
Later you can move on to making assumptions about annual income, expenses and plan further ahead. First, start simple, real and manageable.
3. Make provision for tax. Always.
This is a golden rule. Put aside 30% in a separate account for tax.
Make this provision at least once a month and don't be tempted to spend these funds. At the end of the financial year, you may not be liable for tax, in which case you have a happy buffer available to your business.
And, if in the end you are liable for additional tax, that's not going to ruffle your feathers because you will have saved a large proportion of it and you will be able to make a payment arrangement with the Australian Tax Office (ATO).
Once your first tax debt occurs with the ATO, you will be liable to make a quarterly instalment of income tax based your recently lodged tax return.
Start with these three steps first. You'll see it's not that intimidating and soon you'll be going back again and again to your budgeting and numbers to ensure you stay on track. Learn more about budgeting for small businesses here.
Here is some useful information about the government's 2022-23 Budget Overview - check out the measures that are helping to support small businesses.
At CATS4TAX, we get to know our clients better and how their businesses are doing. That is why it is useful to do a financial health check for your business. Having a clear understanding of your financial health can help you to better position your business for financial success. Check out our Financial Health Checklist below and fix a time for a FREE financial and tax consultation with us.
Get in touch with CATS4TAX:
0404 483 685