The new year has arrived and now is a great time to think about your business. Hello, my name is Janelle Bartlett, I’m a partner at Chan & Naylor Redlands office and I’m here today to talk to you about business planning and your budget.
There are three great sources or places to start to organise your business plan. This first one is business.gov.au, the second is lawdepot.com and third, banks.
Business.gov.au. Has a plan with two sections: the guide and the template, which are both detailed with about 30 pages each. Honestly this will take quite some time to complete. It is worthwhile at some stage, but if you’re time poor now, you may want to take another option.
LawDepot.com, on the other hand, is easier to complete. It gives you lots of help with more detail behind the question mark & FAQ panel. This is a great way to document your plan once you have it developed. You can download a free version or pay about $60 for 12 months access.
Next, I’m going to talk about what I think makes a good first stage business plan with emphasis on the budget. First, the Plan must be simple. It should be easy for you and others to understand and easy to prepare. Look at past financial reports to give you a realistic starting point.
Look at your sales and work out a breakdown of sales into meaningful categories by Product or Service type. Consider your cost of sales and profit and identify the items in your expenses that are directly related to sales, eg. for a plumber, that would be wages for tradesmen, not office staff. Record details for up to 3 past years.
Next, look at overheads and list separately the large items like Rent & Motor Vehicle costs. Your summary should look something like this. Calculate 2 percentages. Firstly, the cost of your sales divided by sales as a percentage. Next, calculate marketing costs divided by sales as a percentage. Calculate these for the past 3 years if you can.
Now you know how much each sale cost you directly. The other costs are called overheads.
Now we will use that history of information to prepare a monthly budget for next year. Your budget should be prepared monthly and have a yearly total.
Consider your goals and know how much profit you would like to make next year. Be positive but realistic. Link your goal to something that is important to you, like an overseas holiday, a boat or a share portfolio.
Here is some actual data and I’m assuming that it’s consistent with prior years. For example:
Cost of sales: $24,000
Marketing: $3,000 (2.5%)
Other overheads: $28,000
Meanwhile, here is the budget as calculated using the percentages and working back. Say, you want to make a profit of $120,000. You need sales of $190,967 with cost of sales of 28% or $38,193, marketing of $4,774, other overheads of $28,000 and profit of $120,000.
This gives you a starting point. In theory, overheads should remain constant but in practice they do increase at some point. You now know that you need to spend $4,774 on Marketing and $38,193 on the costs that make up your costs of sales. That would be expected to produce a profit of $120,000.
One of the factors that can affect the result is the effectiveness of your marketing spend. If you can improve that, your result might be even better. But spending more on marketing does not guarantee more sales. This is part art & part science but certainly these calculations are relevant & helpful!
Now you are ready to complete a budget. Please be sure to complete a personal budget also.
Businesses commonly fail because private spending in not managed. I’m not saying that you should live on a shoe string. This must be what works for you, and you must stick to it. Be sure that it allows for some discretionary spending and a holiday.
Next, decide how to fund and spend your marketing budget. Look at what worked last year as an indication. However, remember that this is a fast changing space so you might need to engage an expert. Put together a plan with a timeline showing marketing activities and cost.
Remember that to be successful: you must spend time ON your business. That will only happen if you schedule time to do that. It’s a good idea to dedicate one day per fortnight and schedule your marketing tasks as part of working on your Business.
Now you need to produce those extra sales. Do all of the things that are needed to produce the sales. Think about what those things are. Make a list of all these things, add it to an action plan and make sure that you have the capacity to produce those extra sales. That you have the time available and resources.
Finally schedule in a learning activity so that you learn something new. It will keep you sharp!
The next thing to do is implement. Be sure to upload your new budget into your accounting software. Xero software is excellent because you can reformate the excel spreadsheet and import it back into Xero as a budget. You can also ask your accountant to help. Schedule a review at least quarterly with your accountant to track your progress.
If you’d like to obtain a free copy of our template used in this video, simply email us at firstname.lastname@example.org and pop in the subject line “Budget template please.”
The information presented here is general in nature. I have made various assumptions which might now reflect your particular circumstances. Please be sure to obtain personal advice so that the details are right for you.
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