Happy New Year! Are you back at the desk, rested and refreshed and ready to build yourself a better business in 2023? You are? That’s good news and a great place from which to begin building your 2023.
There’s been so much written and spoken lately about where the economy is at and if you’ve shopped for groceries in the last few weeks, you’ve likely experienced first-hand the direct impacts of inflation. So over the coming weeks, we’re going to look at how to build yourself some better financials; in business, superannuation and personal finances to help you weather the storm of what might be headed Australia’s way.
Before we start though, have you already decided what your priorities are going to be for this year (business and personal)? If not, you might want to do a quick tools down to think through what’s critical for you this year. It’s always good to start as you mean to go on.
10 tips to help you build a better business in 2023
A core tenet of building yourself better financials as a business owner is defining how you’ll allocate your resources and you can’t possibly decide on resource allocation until you know what you’ve got to work with. And you can’t possibly know that, until you’ve worked out a budget. Below are 10 tips to help you get your budget right.
1.Start with a clear vision of your goals and objectives – see your priorities (above). That will ensure your efforts are aligned with what’s important to you and your business’ overall strategy. Are you aiming for growth, stability, exploring new opportunities. Whatever you’re aiming for, make sure your budget is aligned to that.
2. Build your budget correctly. So many budgets have traditionally been built on nothing but air. If you’re ever looking for funding, either from a bank or an investor, you’ll need to be able to produce some solid numbers that you can argue validity on. Forecasts are often rubbery things, with some even stretching 5-10 years out. However, if Covid taught us anything it’s that life and business can change in days hours and minutes, not years and decades. So if you’ve been in business for any amount of time, rather than estimates, use as close to real numbers as possible. Use your bank statements, credit card statements and quotes to populate your budget lines. Whatever you do, make sure that you’re using real numbers.
3. Prioritise your expenses. As with so many other things, not all expenses are created equal. When you really look, you’ll find some budget items are critical, some are important and others are merely nice to have. And almost everyone’s budget at some point, if they’re really honest, includes items that fall into the ‘why are we (still) paying for that?’ bucket. Get rid of those asap and trim back the ‘nice to haves’ as soon as you can. Over the last 20+ years, we’ve seen business owners spend a motza on trivial things they really didn’t need only to burn through all their available cashflow and tank their business. Keep your focus on the critical/important items that allow you to continue to operate and grow.
4. Build yourself a business continuity buffer. Just like we talk about building a buffer of 3-6 months expenses for emergencies in your personal finances, building an emergency buffer in business will allow you some piece of mind, just in case you lose your biggest client, you’ve got supply chain issues, or some other worst nightmare befalls you, etc. Your buffer will allow you to continue and survive in the face of difficulty. Aim for at least 3-6 months. Once you’ve amassed that amount, you might want to consider getting some professional financial advice on how to best invest it whilst still allowing for emergency access if the need arises.
5. Don’t forget to factor in price rises even in the near term. Inflation is sitting somewhere around 7-8% per annum at the moment, but energy pricing is going up in the vicinity of 25%. So make sure your numbers are based on forward looking reality.
6. Base your revenue projections on reality. When it comes to estimating revenue growth, make sure you’re not over-reaching. Let’s say you’re forecasting growth of 10%, make sure you know what that means in terms of how many more sales you have to make, customers you need to acquire, how many leads you need to talk to, how many enquiries need to come in, etc and that ALL those numbers are achievable. If they’re not, revise your projections and the rest of your budget accordingly.
7. Allow for some flexibility and adaptation. If there’s one thing we’ve all learned over the last couple of years, it’s that things can and do change. Sometimes overnight. And every now and again (often more frequently than that) opportunities will also come your way. If you’ve already built yourself a continuity buffer, having a small stash of accessible funds, means you can more likely manoeuvre to avoid difficulties or take advantage of your opportunities.
8. Figure out how much an hour of time costs (yours and that of your team too). Don’t just think in terms of salary, include on-costs such as payroll tax, superannuation and entitlements such as sick leave, holiday pay, long service leave. Are you recouping those costs adequately? If not, how much product or service will you need to sell in order to do that? Once you’ve done this, it’s quite sobering to think about all the time you might otherwise waste in a day. As they say, “time is money” – don’t waste yours.
9. Monitor and evaluate regularly. A budget is a living document, not something you do at the start of the year and then shove in a drawer never to look at again. Without constant tracking, it’s too easy to lose sight of what’s critical, miss opportunities to haggle over excessive, but important costs and trim the ‘why are we paying for that’ items. Set a time each month to review what’s come in, what’s gone out and why any variances have occurred. If you’re using cloud software such as Xero, you’ll find your tracking becomes so much easier and you can set up budgets within it.
10. Understand what your numbers really mean. One of the biggest mistakes we see business owners make it that they aim for and ‘budget’ on what they turnover (or spend what’s in their bank account). Let’s say they turnover a million dollars. We’ve seen people make decisions on that million dollars. Nope, not even close and it’s a sure way to kill your cashflow quickly. If you sell your product or service for $10,000 and it costs you $7,000, budget your ‘spending allowance’ from the gross profit of $3,000, not the whole $10,000. Better still budget based on 60-70% of that (allowing for GST and tax) and you’re whole lot closer to the real number you have to work with.
And an extra tip for good measure…
11. Don’t forget to allow for paying your taxes in there too. Key to all things business is the tax man always gets paid. And just because your business is running short on cash, doesn’t mean the ATO will be accommodating (sadly those days are coming to a close and the ATO is now all about collecting the cash owed to them). If necessary, set up a separate GST/tax account and regularly squirrel money in there to ensure you’re good to pay your tax liabilities as and when they fall due.
Of course, if we can help you better manage your business planning or setting up budgets within Xero or looking after your business/personal tax affairs, you can call us on 6023 1700 or connect with us via Facebook or LinkedIn.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.
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