17th May, 2017
While I’m working out what a client’s possible tax bill will be, I also take the opportunity to help my client budget for the year ahead.
I previously touched on using a client’s Profit and Loss Statement to work out their tax bill – but you can also help your client plan for the financial year ahead at the same time.
In much the same way I can take the information in my client’s accounts and extrapolate out to 30 June to work out their possible tax bill, I can also use that information to plan ahead.
This is called budgeting, and it’s essentially an estimate of income and expenditure for a set period of time, so you can actually prepare a budget for a month, a quarter, or a year.
A budget certainly isn’t an exact science so don’t stress – this is not a test and it really is a tool to help you in your business!
A budget should merely be your best estimate of what you think your income and expenses will be for the budgeted period.
MYOB makes it really easy to prepare a budget – and below I’ve outlined the exact process I use to plan ahead.
While you can do this yourself, it’s usually a great idea to get your accountant involved in this conversation and chat about different areas of your business.
Step one: In MYOB AccountRight, run a Profit and Loss Statement using multi-period for the year to date.
This will show you exactly what income and expenses your business has received and incurred during the year and is a great starting point.
Step two: Export this report to excel.
Step three: Look at expenses first, as it really sets the scene. It also gives you an opportunity to really understand the costs of operating your business.
I review each expense line by line and update the monthly figures accordingly, which is what I expect that expense will be for the new year.
Just make sure that you take into account whether it is likely you’ll increase wages, pay bonuses or if you’ve recently been notified by a supplier that they will be increasing their prices from 1 July.
Step four: Review your sales. Initially just update the sales levels based on a best estimate. Do you normally increase prices at 1 July? Are you expecting sales levels to grow?
Step five: If your Profit and Loss Statement includes cost of goods, then apply your cost of goods percentage to your anticipated sales levels.
Step six: Now it’s time to review the bottom line. Have your estimates resulted in a profit, loss or breakeven? Realistically, what would you like this number to look like? This is your business and you can call the shots!
Step seven: Do you need to tweak something? If you want to increase your profit, you can use a combination of the following; reduce expenses, increase your sales price, increase your number of sales.
Step eight: When you’re happy with your budget, you can import or data entry back into your MYOB AccountRight file.
Instead of printing out your standard Profit and Loss Statement, start printing out the Profit and Loss Statement – Budget Analysis so you can constantly check in on your progress against your budget and take action if required.
For example: if you fall short of sales in July, you might be able to catch up those sales in August.
Once you start measuring and reviewing your numbers regularly and then compare your actual results against your budget, you get better control over your business’s numbers and are more likely to hit your sales and profit targets.
“A budget is telling your money where to go instead of wondering where it went” – Dave Ramsey