Now this might surprise you, but a new financial year can be an exciting and rewarding time, rather than a solely daunting or stressful one!
Numbers can truly be fun, and the information you (or a professional you look to for support with this) extract from them can be used to plan and prepare for the future. This approach will ensure you’re on the right path when it comes to making those short and long-term goals a reality, both in your business and in life more generally.
I recognise that figuring out how and where to start can be a little off putting though, and also, how will you ever find the time?!
So, below are some of my key pieces of advice when it comes to setting yourself up for success for the year ahead – and beyond.
Develop your small business budget: it’s a must!
A budget is super helpful when it comes to staying on track and ensuring you’re investing in your company and its growth in an informed and sustainable way.
I would recommend that while creating this, you also develop a personal budget, as the two are inextricably linked – you need to be able to pay for your own mortgage or rent, utilities, things like childcare, and more after all.
Extract the stories from your historical data
First things first, there’s a lot of value in looking back at historical data when creating an annual small business budget (you can also create quarterly or six-month ones if preferred), to get a clear picture of how the company performed over the last 12 months.
You’ll most likely find some interesting trends during this process. You might identify that particular times of the year were busier or quieter than others and be able to determine the contributing factors here – is it seasonal, did a large one-off project land, or maybe you invested in a big marketing push, for example.
When it comes to setting this year’s budget, take details like these on board, as it will help you set monthly budgets, which will inevitably be higher or lower depending on the time of year.
Building your budget: key elements to include
Once you’ve reviewed your company’s prior performance, it’s time to create your budget for the year! There are three main things to include here: your fixed costs, variable costs, and earnings.
Fixed costs are those that you expect you’ll be paying each month, such as subscriptions, monthly marketing or VA retainers, rent, utilities, and salaries or wages – both the amount you pay yourself (and I can’t stress this enough: make sure you pay yourself first!), and your employees if you have any.
Variable costs are essentially those invoices that you know will be coming in, however they are a little more haphazard, such as the cost of extra product, materials or wages that are needed during busier periods, and client entertainment or gifting – think one-off instances like the festive period!
From an earnings perspective, try and plug in as much detail as you can about what you plan to make. If you’re a service-based business, this might mean monthly retainer clients, and one-off projects you envisage arising. For product-based businesses, your sales will generally be higher during particular seasons, or on certain days (such as Mother’s Day, Easter, or Christmas) so know that there will be variation here too.
Keeping on track with a regularly updated forecast
So, what’s the difference between a budget and a forecast? Essentially the budget is your overall plan: it details what you want to achieve for the business. On the other hand, the forecast measures your actual results, and helps you see if you’re on track with your budget at any given point in time.
It should include the same things as the budget, however you’ll ideally input data into it on a weekly basis.
Why create and analyse a forecast, too?
As a small business owner, myself, I totally get that finding the time to manage your books ongoing can be a bit of a tedious task, but there are many additional benefits to committing to this.
Importantly, by having up to date numbers at your fingertips, you’ll be able to make highly informed decisions when it comes to investing in big things like new inventory or additional team members.
Accounting and bookkeeping software is great in that it automatically breaks costs down by category, so you can easily identify any areas of overspending or underspending too and make changes to how you’re operating the business accordingly.
Your forecast also allows you to see if you’re on track to achieve your financial goals, and then take actions such as increasing your prices to meet them or reduce your budget to ensure you’re still able to operate. This might mean, for example, holding off on that additional employee or purchasing that new piece of equipment.
If you’re finding you’re earning less than anticipated in one month and more in another, or clients and customers are constantly paying you late (which also highlights the need to re-work your contracts with them!) you can also revise your budget, so there are less outgoings during those quieter times, and you can continue to cover your fixed costs.
The beauty of the budget and the forecast is that they don’t need to be set in stone. They can evolve as your business grows. The most important thing is to ensure you have both to hand, and regularly put the time aside to review and revise them, to ensure you’re making accurate decisions, and in turn, achieving those goals!