7 Budgeting techniques to grow your small business

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When it comes to tracking expenses, a lot of businesses tend to just estimate their budget without really putting the numbers down. This can prove to be fatal to your business because you don’t know where the money is going or coming from. 


Being able to properly track these expenses is crucial to a business as Michael Youssef, CEO of leading Sydney accounting firm HY Accounting, says, “How can you run your business if you don’t know what your incomings and outgoings are?”


Many small businesses often don’t budget at all, seeing a budget as too rigid and too constricting, creating problems later on like poor cash flow, undervalued products and services, and improper credit tracking. 


Being able to efficiently manage your budget can make running your business much easier and keep you away from issues down the line. A good financial framework is planned out properly, well-controlled, and allows you to keep track of every expense. It enables you to work within set parameters without being too rigid because you can see where the cash comes and goes from and how you can adjust it. 


“From a business perspective, tracking your expenses—that’s everything!” says Michael, underscoring the idea that it’s vital as there’s no way to know if you’re on-budget if you’re not tracking what’s going on with your expenses. “It’s core to your overall business.”

7 effective budgeting tips for small business owners


By following these seven steps, you can make your plan more effective and grow your small business, leading it to success.

1. Track your expenses


Being aware of how much you’re spending as a business helps you because it gives you a more accurate picture of how you’re doing financially. Instead of guessing, you’re aware of how much you’ve spent and on what. You’ll know how financially healthy your business is and know where you’re allocating your money. 


“A lot of businesses track their expenses in their head. And the problem is that our minds are not perfect and so we need to start to put pen to paper and we need to start to look at real data,” said Michael. 


He adds that “you don’t know what you don’t know” and, because you’re not aware of just how much you’re spending, how can you run your business when you’re not cognisant of the incomings and outgoings in terms of expenses?


“I think every business has an understanding of their expenses but not every business uses proper tools to track their expenses,” Michael says. 


Tracking expenses also gives you a better understanding of your budget and helps you avoid overspending. By seeing where your money is going and evaluating whether or not those investments are good for your business, you have a better idea of where to put it.


You’ll also have an easier time meeting your financial objectives when you track everything. If your goal as a business is to hit a certain growth point by the end of the year, you can have a better handle on getting there by noting every expense.

2. Smart spending


Identifying where to put your money for growth is key to smart spending. “It’s not about being cheap, it’s about strategic spending,” says Michael. He suggests investing, and investing in good marketing, accounting, bookkeeping, mindset, and investing in yourself (in terms of skills development) are the best ways to spend smart. 


“If you’re tracking your expenses and you’ve got a real good handle on where your money is going, then your smart spending is around building more favourable terms to get better deals for supplies,” stated Michael. 


By spending smart, you are able to maximise your budget and allocate money where it can benefit you most. 


And setting aside an emergency fund just in case is necessary since you never know what could happen (just think COVID). Investing in good employees and utilities is another smart strategy. Finally, asking yourself whether or not a purchase is necessary is a good way to confront yourself about your spending habits and your reasons for wanting to buy something. 


Michael stresses that smart spending is about knowing where to spend to create profit. 

3. Claim your entitlements


Small to medium businesses need to work with their accountant in order to know what they can claim. Many businesses end up overpaying taxes because they don’t have a financial professional working with them. With a professional accountant, businesses can ensure that they’re not overpaying their taxes and claiming any entitlements and tax deductions. 


“We always ask if there’s a direct link between the income and the expenses so in the actual technical language, in the law, there needs to be a nexus between the income and the expense. What that basically means is we need to see a direct relationship between the two,” says Michael. 


“By spending this money, will it allow me to create money? If we can see a direct link, then we can claim a deduction,” Michael says. 


More than nine in ten businesses overpay their taxes—that’s about 93% of them. Even if 95% of them feel confident that they’re doing financially well, they’re surprised to see that it’s actually the opposite that’s true when an accountant crunches the numbers. Making accurate payments through the help of an accountant can help you avoid overpayment and keep your budget on track.


By deferring taxes and paying for them at a later date, spending more in order to reduce tax, and lowering tax rate, you can save more when it comes to taxes. 

4. Maintain a steady stream of cash flow


“Growth is expensive,” says Miichael, acknowledging that growth requires spending more since you have to hire more people for a team, expand on production, and other new costs crop up. Complications can occur when you grow which can lead to mismanaging cash flow. 


“I like this quote: Revenue is vanity, profit is sanity, and cash is king… I read it in ‘Scaling Up’ by Verne Harhish,” a book Michael highly recommends. 


“As business owners, we can get excited by our revenue. But revenue doesn’t necessarily mean cash flow. So revenue is not an indicator of cash flow. Profit isn’t necessarily an indicator of cash flow because our profit and loss has items that don’t show up. So balance sheet items aren’t reflected in your profit and loss… So understanding that cash is king is super important,” says Michael.  


So while profit can reflect some hopeful numbers financially, you still need to go further as a business and understand your cash flow cycle (i.e. when you get paid and when you pay your bills). 


Remaining cash flow positive is crucial to growing your business and by getting what you’re owed by your customers, working on retainers arrangements, raising prices, and avoiding spending money on unnecessary things can help boost positive cash flow.  


Building budgets is also a necessity according to Michael, especially safeguards just in case something goes wrong. He calls these “cash buffers” and advises business owners to have at least one month’s overhead to be safe and keep all wages covered. 


There are several ways to maintain a healthy cash flow and keep more money coming in as opposed to going out. By increasing your sales, tightening credit requirements, and offering discounts to customers who pay early, you can definitely have more cash flowing into your business. 


5. Establish regular financial forecasts


Financial forecasting is predicting your business’ performance. This estimating allows you to have an idea of what will help your business grow and what you’ll need to spend on in order to promote that growth. Putting these numbers down can help give you an idea of the budget you have to follow.


By adhering to your financial forecasts, you can make better decisions in terms of your long-term financial goals. 


“[Forecasts] aren’t 100% certain but what it gives us is a yardstick, it gives us a benchmark, it gives us something to aim towards,” says MIchael. “Because we’re now tracking our expenses, we can take it to the next step further, which is starting to build out forecasts and understanding trends… Where’s our revenue coming from? Where are our expenses going?” 


Forecasts are data-driven because you can look back on prior data and see how it trended and how budgets did in the past. You’re able to glean what worked and what didn’t from a glance and apply those learnings to your next forecast given your position in the market. 

6. Prepare a financial contingency plan


Being ready for any mishaps and unforeseen events can help a business in times of trouble. Consider how COVID-19 caught everyone by surprise and forced plenty of businesses to close. No one really foresaw a global pandemic and likely didn’t factor it into any plans. Which is why having contingencies in place can help you recover from any losses you suffer in untimely events.


For Michael, “It comes down to: The more you know, the better you can prepare.”  


Preparing for situations where a business owner has to take a step back is also important. “Things like building up processes so that someone can step in if needed. You could build out systems and processes so that if you did have to take a step back, it becomes easy for someone to step in and take over that process. That creates more longevity in the business.”


Not only that, but putting these processes in place increases the business’ value because anyone could step into it and take over with relative ease. 


“You might have to prepare forecasts for different situations. What would it look like if the business’ revenue strained by 50%? What would it look like when the business’ revenue grew by 50%?” Asks Michael, proposing different scenarios that could happen. 


“Risk mitigation is a massive thing. You need to speak with your accountant to understand what other risks can happen.”


Having a contingency plan can ensure you’re ready for what could potentially hurt your business. Every business is different so what could harm one’s growth might be different from another business’. Focus on the events that could affect your business first as priority and then list other possibilities after that. 


With these plans in place, you can be ready for anything unexpected. 

7. Schedule budget reviews


Reviewing your budget consistently is important for your business’ growth. It’s a business owner’s responsibility to be on top of budgets in order to remain financially viable. By keeping personal and business finances separate, paying yourself fairly, and calculating what you need to sell, you can definitely grow your business.


Comparing a budget plan to actual spendings can also help you with adjusting it as you can more accurately see if the numbers line up. If a certain expense is cheaper than predicted, you can allocate more to a different area. 


Creating an effective budget plan can be complicated and meticulous but with some help and with these tips, you’ll be better equipped to handle it. Stay on top of your finances and expenses and you can look forward to business growth


If you’d like to talk about growing your business sustainably, you can have a chat with us. And if you’d like to learn more about how to best utilise the expertise of Michael Youssef, he’d love to speak with you.

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