Danny Pritchard
March 7, 2023
First things first: it’s time to count those dollars.
Before you can begin setting a budget, you need to know how much money your business is bringing in each month. Grab a calculator and open up a shiny new spreadsheet. Or a fresh page in your notebook if all those formulas spark unpleasant flashbacks from Year 10 maths class.
You’ll need to calculate all sources of revenue, including sales, product or service offerings, and any other income streams. Make sure you have a clear, accurate understanding of your business’s monthly income before moving on to step 2.
It’s okay - we’re in denial about how much money we spend on coffee, too. However, keeping a record of all the expenses incurred by your business is important. We’re talking operating costs such as rent, utilities and payroll, as well as investments in equipment or inventory.
If you already use accounting software, log in to see your previous financial reports. These will give you an idea of your monthly expenses. Use this, and dive into your banking history (sounds like the opener to a horror movie), to understand your spending patterns.
With all the numbers to hand, you’ll be able to make informed decisions about where to allocate resources. And where to reign in your spending.
Quick tip: Notice where you’re paying for memberships or software you no longer use. Even if you only spend a few bucks a month, these things add up and are a waste of money. Unsubscribe to the stuff you don’t need anymore.
Now that you have a complete picture of your spending, you can categorise your expenses into groups. Feel free to tailor these groups so they work for your business. Generally, we find business owners go for categories such as operating costs, marketing and investments.
Do the same process for money coming in, splitting income into categories to see your different revenue streams.
This step helps you understand where your money is coming from and going. It’ll help you allocate resources more effectively, so don’t skip it!
What do you want to achieve with your budget? Is it to grow your business, increase profits or expand into new markets?
“My goal is to buy a Mustang, BOM. This all sounds bor-ing.”
Baby steps. Let’s start with specific financial goals that can be achieved with a clear budget. These goals will help you stay focused and motivated, and give you a good sense of direction.
If it helps keep you on track, write down that Mustang as a long-term goal.
Based on your current expenses and income goals, determine how much money you need to allocate to each category.
Make sure enough of your budget goes to operating costs, but also leave room for investments and growth initiatives.
The accounting software of all accounting software, Xero has a range of budgeting tools to help you make smart decisions about where to allocate resources. They don’t have a ‘Mustang’ category (yet) but you will be able to create custom budgets for your business. With this tech at your fingertips, you can track expenses and compare your actual spending to your budget.
With Xero, you’ll always have a clear picture of your finances, so you can make the necessary changes to stay on track.
And nope - we’re not on commission nor is their marketing manager our drinking buddy. However, when you sign up with BOM, we’ll set you up with a Xero account because it makes your business budgeting a breeze.
You’re not entirely off the hook just because you’ve planned your business budget. A budget is a living document that should be reviewed and adjusted on the reg. You can check in monthly or quarterly - just decide what works for your business, and make sure you put away time to do all this number stuff. Even if you hate it.
To help, you can use Xero’s reporting and analysis tools. They will give you an instant overview of your spending compared to your budget, so you can make tweaks and twiddles as needed. Avoid an “out of sight, out of mind” mindset here. Getting used to checking and adjusting your budget regularly helps you stay on track and make progress towards your financial goals.
Daily oat milk lattes aside, Bring On Monday offers professional budgeting advice for businesses. Whether you’ve run into financial difficulties or you just want to get proactive with your budget, getting advice from a pro is invaluable.
An accountant or financial advisor (like the money nerds at BOM) can provide key insights and guidance to help you set - and stick to - a budget that’s both realistic and achievable.
We know budgets and spreadsheets and balancing books aren’t everyone’s cup of tea. But setting a budget for your business is a critical step in managing your finances - and ensuring the success of your company. Following the above 8 steps will give you a clear understanding of where your resources are going, and how to better allocate them. Plus, with Xero leading the way, you’ve got the tools and resources to stay on top of your budget.
We promise: Once you get started, it’s not as scary as you think. Take a deep breath, grab your calculator and let’s begin.
Otherwise, let BOM be your comfort blanket. Book a call and let’s work out this budget thing together.
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If you find a cheaper all inclusive accounting solution similar to the 'BOM Difference', we will beat it by 10%. In addition, if we haven't made your life as a business owner easier after 3 months, we will donate all subscriptions fees to your favorite NZ charity.
