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Is budgeting your Achilles heel?
Truth be told, there aren’t many business owners that absolutely love managing their finances. And we get, we’re the exception to the rule. (Don’t judge us – instead of Facebook notifications exciting us, Australian Financial Review alerts do.)
Which is why so many of our clients struggle with not only proactively managing their finances, but also their risk. And by this we mean having enough to put aside for a rainy day, such as when business is quiet, natural disaster hits, or even for holidays.
It probably wouldn’t surprise you that many small business clients manage their finances by monitoring their bank account. Decisions are made purely as a result of the numbers in the bank. And to be honest, it’s only natural. We’ve spent years honing our trade and/or professional skills, so it makes sense to place all of our energy there. It’s where we’re comfortable. It’s where we’re safe. It’s where we know our stuff.
And the numbers? They’re just an essential – albeit annoying – part of that business.
But this approach can open you up to incredible risk.
The good news is that you don’t have to be an accounting genius or financial wizard to mitigate the financial risk in your business. There are a few simple things you can do to manage your finances responsibly, making sure there’s always something left over for a rainy day.
Don’t spend money that isn’t yours
If you have staff, it’s important that you understand your financial obligations beyond paying their wage.
The current Superannuation Guarantee rate is 9.5% of an employee’s salary (and is scheduled to progressively increase to 12% over the next six years).
If you pay your superannuation quarterly, it may be a good idea to set up a separate account to manage your superannuation payments. If you pay wages weekly, you can transfer the superannuation amounts each week into this account. This will prevent potential panic at the end of the quarter when your obligations are due and the bank account is running low.
You can proactively manage your Pay As You Go (PAYG) and GST responsibilities in the same manner. By segregating the total PAYG each pay run into a separate bank account, you won’t run the risk of spending money that doesn’t belong to you. And as invoices are paid, siphoning 10% into a GST account can prevent you from generating a significant ATO debt.
Understand your expenses
It’s all too easy to get caught up in annual memberships and software subscriptions that promise to make our lives easier. But they all cost money. And while they may not seem like much individually, collectively these expenses can really add up.
For a small business, it’s well worth putting aside some time to review your expenses. The vast majority of online subscriptions and memberships use a direct debit system – for businesses, it’s a great method of generating ongoing sales. But for us small business owners, the money has often left the account before we’re aware that we’re resubscribing, and the cycle of spending continues.
Taking the time to know where your money is going, and when, will not only help you budget, but also measure the results of your spending. If you’ve invested $1200 in networking memberships over three years and received leads equating to $300, then it may be time to consider where else that money could be spent to generate a return.
Save a portion of your profit – always
The most successful businesses we work with are those that religiously put aside a percentage of their profits. It doesn’t have to be a significant amount – the key is to be regular with your saving. Even the smallest amounts add up over time to give you a buffer.
We all have times where we overspend and yes, we definitely need to reinvest in our business. From revamping your website through to upgrading your vehicle, there’s always a wish list. But the key is to accrue that money beyond your savings buffer. It may take you slightly more time, but it means that if a project blows out and costs you more than originally expected, or sales decrease unexpectedly, you have backup.
You don’t need to be an accountant – you just need to be accountable
Taking ownership of your finances is critical to not only security, but also growth.
It’s all too easy for small business owners to fall into the trap of managing their business from their bank account, overlooking the fact that a large percentage of that income may not, in fact, belong to them.
It’s all about taking the small steps to become aware. Start with taking a big picture view of your spending, and then start working out where your regular and adhoc costs are. Be accountable for the money you’re collecting on behalf of the government, as well as your staff superannuation.
And the rest? Know what you can spend, and where your limits are. Be sensible, and put aside what you can for that rainy summers day.
About the Author
Despite having over 25 years financial services experience, Kylie Sultana is Creo Wealth’s incredibly youthful Practice Manager. With husband Anthony, a financial Adviser, a focus on the people behind the numbers has seen Creo Wealth become Western Sydney’s sought-after financial planning firm.
This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.
Creo Wealth Pty Ltd ABN 96 605 894 415 is a Corporate Authorised Representative (No. 1236172) of ClearView Financial Advice Pty Limited ABN 89 133 593 012 AFS Licence No. 331367 GPO Box 4232, Sydney NSW 2001.