Small business owners: Three steps to prepare a business budget for the next financial year
You know you need it - but where do you start?
A business budget for the next financial year is a necessity for any small business.
Without budgeting and forecasting, it’s almost impossible to grow your business strategically. In fact, a business without a budget is like a teenager with a credit card: no one knows how things are going to turn out or what damage might be caused!
As an adviser for small businesses, we present some insider tips on the three steps you need to take to budget for the strategic growth of your business in the year ahead…
How to prepare a business budget in three easy steps
1. Make your budget ambitious but realistic
Your business budget should be ambitious but realistic.
You want to be kicking goals and getting rewards. So, set your yearly gross profit at five percent; decrease inventories by two percent by end of financial year; and reduce overhead administration costs by a percentage of turnover equating to three points.
Set 3-5 achievable and ambitious goals that your business budget can aim towards.
2. Plan how you’re going to achieve these goals
Aim to increase sales to achieve these goals, while reducing business overheads and cutting costs.
If your business is small, around 5-12 people, your capital expenditure will not be high. As your employees grow, though, your budgets and goals will need to broaden also.
Make your assumptions accurate and be specific about the actions required. You may have the goal of increasing revenue by five percent over the next year, but how will you achieve that?
Adding skilled employees may bring you closer to that mark - but could extra training for your current employees reduce the overall expenses?
You might play with the idea of lowering or raising the prices of your product or service. Think about how this could be reflected in your goals.
Are there new markets that your business might excel in? How can you create visibility in those spaces for your service or product?
3. Quantify ideas with figures
Once you’ve brainstormed the main questions, quantify your ideas into actual figures. Compare training costs to salary costs and how that might increase or decrease expenditure over the year.
Remember, all the time and effort you spend on preparing a business budget for the next financial year is reinvestment into your business.
But you don’t have to go it alone.
Ascent Accountants in Cannington are specialist small business accountants for the Perth area.
We’re available to help you create a business budget and to develop strategies that help you achieve your small business growth goals. Contact us here.
Need help with your accounting?
One of the most powerful decisions you can make with your superannuation is whether to run your own self-managed super fund (SMSF) and whether to invest in property through it. Most people know it's possible to use super to buy property. Far fewer know how to do it well. The following seven tips are designed to help you make the right decisions. 1. You Can Borrow Money to Purchase Property in Superannuation. Don't have enough in your SMSF to buy an investment property outright? Since 2008, superannuation held in a self-managed super fund can be used to borrow money for property purchase. This is done through a 'limited recourse loan' using a Bare Trust as the Custodian entity. You can't borrow the total value of the property—typically it's up to 80% for residential properties and 60% for commercial properties, with the required deposit held in the SMSF as security. The SMSF then makes the loan repayments, with rental income received by the fund and property expenses paid by the fund. Importantly, if there is a default on the loan, your other assets in the SMSF are generally protected from standard debt recovery and bankruptcy proceedings. The lender only has recourse to the property itself. Upon completion of the loan repayment, ownership of the property transfers legally to the SMSF. 2. Follow These 8 Steps to Set Up Your SMSF Setting up an SMSF properly can be a complex process. It’s best to set up an SMSF with the assistance of a qualified superannuation advisor, like us! We can assist with both the initial setup and the ongoing management of your fund. There are eight core steps to SMSF set up: Select the appropriate structure and name Sign the trust deed that covers how your SMSF is set up and run (it can have up to four members) Establish a trust for the SMSF by investing assets into the fund Register your SMSF with the ATO Set up a separate bank account for your fund Submit your tax file number (and those of any other trustees) Obtain an electronic service address to receive employer contributions into your fund (if applicable) Roll over funds from your existing superannuation account into your SMSF 3. Keep a Liquidity Buffer If you're buying property through superannuation, make sure you plan to keep a liquidity buffer of cash and/or shares in your fund. Lenders will check for this before lending to you—it should be at least 10% of the value you intend to borrow. But beyond satisfying the bank, it's simply good risk management. Property is an illiquid asset. Having accessible funds in the SMSF means you're not caught short if repairs are needed, the property sits vacant, or an unexpected expense arises. Because superannuation is central to most Australians' retirement security, the government has carefully regulated what can and can't be done with it. They don't want people gambling their retirement away on poor investments or incorrectly using their superannuation fund. 4. Use the Rental Income to Repay Your Loan You cannot live in the property you purchase through your SMSF until after retirement. Most people purchase an investment property and use the rental income generated to repay the loan—which makes excellent financial sense. The key is selecting a property that rents easily and delivers a strong rental return. Your purchasing criteria may look a little different to buying a home you'd live in yourself. For example, proximity to public transport, local amenities, and average rental rates in the area matter more than personal preference. 5. Get It Right and Enjoy Significant Tax Efficiencies One of the most compelling reasons to invest in property through superannuation is the tax efficiency on offer. These benefits can significantly improve the long-term return of a property investment compared to holding it in your own name. Key tax benefits include: No capital gains tax or tax no yearly investment earnings if under super caps. Salary sacrifice advantages if you're sacrificing salary payments into super, loan repayments are effectively tax deductible. Capped tax on investment income—the maximum rate of tax on income after expenses is 15%. Any capital gains on investments held for 12 months or more, is taxed at 10%. Standard investors outside super can pay up to 47%. 6. Follow the Same Due Diligence Rules as Any Property Purchase Buying through superannuation doesn't mean relaxing your standards. If anything, the rules governing SMSFs mean you need to be more rigorous, not less. Property is likely one of the most significant financial decisions of your life. Research, not emotion, should drive your choices. The same rules apply whether you're buying in or out of super: Visit and compare multiple properties Know the values of similar properties in the same area Get all property checks performed by the right professionals Shop around for the right loan structure and lender Don't abandon good investor habits just because the structure is different. 7. Always Get Quality Professional Advice Nothing comes without risk—but the right advice significantly mitigates it. The key is understanding what you're getting yourself into: making informed decisions based on accurate data; keeping a diversified superannuation portfolio that doesn't place all your eggs in one basket; and not underestimating how complex buying property in superannuation can be. Sound Simple? It’s all in the details. If the above tips have made it sound straightforward, know that the detail is where the complexity lives. Getting professional advice from the start helps ensure you make the best possible decisions for your future. When selected according to rigorous property-purchasing criteria, property can be an excellent way to grow your superannuation and increase your chances of building a retirement fund that supports the lifestyle you want. Ready to Explore Property in Your SMSF? Whether you'd like to discuss whether an SMSF is right for you or need help setting one up, reach out to Ascent Accountants . If you want assistance managing the property within your fund, contact the Ascent Property Co team .
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