Tolerable Tax - Budget tips for the new financial year

I am Brett Beaver, a Perth based “business services” tax tragic, welcome to Tolerable Tax! On Tolerable Tax this week, continuing the focus on 30 June and the fast approaching new financial year, I’ll be reviewing top budgeting tips.

I have successfully switched off the “tax side” of my brain this week! So this is not another post regarding Joe’s 2015 Federal Budget… that was so last month! As a “business services” accountant, I also seek to assist clients by providing advice, tips and strategies to assist in running their business. With one of these tools being budgets!

A budget can assist with financial decision making and allow you to understand the overall operational performance of your business via investigation of any deviations from the budget.

In discussions over the years with many small to medium business owners, the typical response to budgeting for those who don’t formally prepare budgets, is that it’s either not formalised or simply “all ok” as they already have a good idea about the performance of their business, and in some cases may even be able to tell you their expected daily operational performance! But I always challenge this line of thing with questions such as; Have you effectively passed this message to those surrounding you, i.e. your management team or staff? Are you all working towards the same performance goals?

So if you decide to take up my challenge, consider my top 8 tips for crafting your budget:

    1. Start with refreshing yourself on your overall business plan? Where are you headed?

    2. Decide how you wish to approach setting a budget? Can you simply dictate spending? Do you require “buy in” from your management team, thereby needing their input for your budget?

    3. Review the financial results of the prior financial year (i.e. weekly, monthly or quarterly results are best rather than annual figures), and investigate any anomalies;

    4. Review your internal forecasts of sales and expenses for the coming financial year and compare these to industry forecasts. Are you above/below, why?

    5.Liaise with your financial planner. Consider the use of excess cash flow from business? Do you have plans to acquire significant new equipment and/or expand operations, if so, how does this fit into the budget? Do you have a “rainy day fund”?

    6. Liaise with your accountant or tax agent and ensure that you are budgeting for such things as superannuation guarantee, taxes, etc. (There had to be one tax tip in here!)

    7. Keep things simple, a budget should be flexible and can grow with your business.

    8. Take the numbers out of your head and put them on a page! Consider how you with disburse the budget targets to your team. When done right, a budget can be used as a powerful motivator!

Budgeting is what you make of it. Just ensure that once it is set, it is not forgotten. Ensure that you set up a regular weekly, fortnightly or monthly review and compare actual results. Investigate the variances and understand them. Was it a fault in your budgeting, or is there a performance/manufacturing issue that needs to be addressed.

So where to from here:

  • Challenge yourself! Block out time in your calendar for you (and your team if need be) to craft a new budget for the upcoming financial year.
  • Does your accounting package allow you to prepare a budget and then monitor this moving forward?
  • Once your budget is completed, do you need to disburse the sales targets? Make it an event! Consider staff rewards for achieving budget?
  • Ensure that you block out time on a weekly, fortnightly or monthly basis to ensure you compare actual results to your budgets.
  • If it all gets too much… reach out for help from your financial planner and accountants! That’s why they are there!

Let me know in the comments if you would like a particular topic discussed in a future instalment of TT and I will do my best to accommodate! Remember, I am unable to give advice, but am always happy to share my thoughts on an area of tax. For specific advice, talk to your advisors or contact me.

And please remember, Tolerable Tax does not contain specific advice. Each taxpayer’s circumstances differ and you should always seek advice (specific to you) before taking any action.

Tolerable Tax will be back with an exciting new post next week. So until then, may your tax be tolerable!