Building a business budget

Creating a budget for your business doesn’t necessarily mean watching every cent you spend. It is simply a list of expected income and expenses, which can then be used as a powerful tool to control finances.

Budgets can help businesses know and track where their money goes. Once businesses know this, they can make conscious decisions about prioritising their money.

Software can also help track how much money is being spent. Free apps can help businesses monitor their spending, and help ensure that they have covered all their likely expenses.

Setting goals is an important part of budget building, and should be set before any budget is created. This means the budget is based on past spending activity and factors in any foreseeable changes in the future.

The seven numbers every business should know

Every small business should keep a close watch on the seven basic figures that can help predict business success. Businesses that do not take these numbers into consideration will never be able to progress as quickly as they should.

1. Cash flow
Cash flow gives business’s an overview of the economic state of the business. Small business owners should always make sure they have the necessary cash flow to meet all business expenses.

2. Net income
Just like cash flow, a business’s net profit provides a good indication of whether a business is earning or losing money.

3. Profit and loss
Knowing the profit and loss of a business can assist owners in making realistic short term and long term plans for the future.

4. Sales
Monitoring sales is important, as increases or decreases in sales could be a sign of a changing market. Reacting quickly to changes in sales allows businesses to determine what needs to be done to sustain growth.

5. Price point
Business owners need to know exactly how much it will cost them when purchasing and selling goods in order to make a profit.

6. Gross margin
If a business’s gross margin is low, and not sufficient to cover operating costs, then it’s likely that the business is not charging enough for the products and services.

7. Total inventory
Tracking the business inventory on a regular basis means any problems that arise can be spotted early on, and negative effects can be avoided.

Beware fraudulent investments

There is one hard and fast rule that you should always follow when it comes to identifying fraudulent investment schemes: if it sounds too good to be true then it most likely is.

While there are some investment opportunities that have the potential to yield massive returns, there will always be a proportionate degree of risk. Anyone promising large returns with minimal risk is almost certainly hiding something. The best way to safeguard against investment fraud is to do secondary research. Ask around, search online and always take your time before making a decision.

Choosing a bank account

Differentiating between bank accounts can be a tedious task, and many people will simply choose an institution that they are familiar with. There is, of course, a lot to be said for trusting your financial institution. Furthermore, you may be able to bundle your new account with existing ones to get a discount or some form of loyalty bonus.

However, you should always do your homework before settling with a banking product. Incrementally higher fees or lower interest rates can make a significant difference to your savings over time. Here are three things you should look when opening a new bank account:

1. Features: Look for things such as withdrawal fees, transaction fees, account fees, interest rates, minimum opening balance and minimum contributions. Some of these features may be more important to you than others. Think about what you want to get out of your bank account and the features that will give you the best results.

2. Services: Services may include internet and telephone banking, an international call line or an overdraft facility. Choosing a bank account with services that are suited to your needs is likely to save you a significant amount of time (and possibly money) in the future.

3. Security: You should inquire about issues such as insurance and fraud protection before you make any commitments to a bank. It may seem like a remote possibility, but if something does ever go wrong you will be kicking yourself for not confirming your level of cover.

Tips for managing cashflow

Cashflow is essentially the lifeblood of your business, and it is about much more than being successful. In addition to raising revenue, a healthy cashflow is determined by organisation and planning. Here are some tips for managing your cashflow

Set targets: Set yourself realistic targets that will meet your business’s needs for the next six to twelve months. You should always factor in having enough surplus cash to make business improvements.
Monitor closely: You should monitor your cashflow closely, checking to make sure you’re on track to meet your targets. This way you will be sure to pick up on a downturn before it’s too late.
Invoice quickly: You need to invoice your clients quickly, as there will already be a delay between them receiving the invoice and making the payment. Many businesses inadvertently shoot themselves in the foot by failing to invoice in a timely manner.
Use the right software: Cloud accounting software can be a lifesaver when it comes to managing cashflow. You should talk to your accountant about packages that may be suited to your needs.
Do not be blinded by profit margins: A lot of small businesses fail because they focus on profit at the expense of cashflow. Profit is important but does not mean anything if you do not have the cashflow to keep your business afloat.

Choosing the right bank account for your business

There are many advantages associated with having a specialised business banking account. It allows you to keep track of your cash flow accurately, easily produce proof of expenses in the event of an audit and can be helpful when making business decisions.

Unfortunately, it is hard to avoid fees on small business banking accounts. It is often worth taking a close look at the business banking products on offer and considering whether it might be in your best interests to pay slightly higher fees to ensure that you have all of the functionality that you require.

Generally speaking there is a trade-off between a high interest rate and low fees, you cannot have both. High interest accounts tend to have a cap on the number of transactions that can be made, with additional fees being charged if you need to make additional transactions.

If you are diligent enough to keep separate business banking accounts then the best strategy can be to have two accounts. One can be used for day to day transactions and will attract little interest. The other can be a high interest account in which you put aside larger sums of money, for example, your PAYG or super contributions.

Take the time to examine the fee schedule associated with the account you are considering. Many banks do have hidden fees, such as a charge for a teller operation or annual business credit card fees.

The art of negotiation

Successful negotiators understand how to negotiate so that both parties feel like they are winning.

Preparation is the key. Knowing what to concede, when to compromise, and how to handle negotiations are all useful tools.

Here is a summary of tips that will help any business owner succeed at the negotiating table:

-Have some ground rules about the negotiation process before beginning. This is particularly important if there is a cultural or linguistic barrier.

-Do the homework and know the point at which the deal would not financially benefit the business.

-Decide ahead of the negotiation what is important to the business and what it can afford to give up.

-Establish the validity of the offer by making small concessions. This suggests that there is little room to manoeuvre.

-Build trust and communication with a give and take process. When another negotiator looks for a concession, ask for something of equal or greater value. Think about what the business agrees to.

-Stay on track and be focused throughout the negotiation, don’t let the business unwittingly give away more than planned.

Cash flow strategies for small businesses

Without profits and positive cash flow, a business is going to struggle to survive. This is why cash flow strategies should be taken seriously.

Aim for long term financial stability

When setting finance and cash flow goals for the business it is important to aim for long term stability.  Businesses should realistically assess how and when it wants to reach its long term goals.

Don’t forget to consider customers who allow purchases on credit as it will help in forecasting how much cash is coming into the business and whether it will be enough to cover expenses.

Profit first and growth later

Businesses should aim to increase profits in the present and use them to grow the business in the future. Approaching it the other way around isn’t always a good idea, especially for start-up companies.

Be aware of timing

Businesses need to be aware of exactly when money is coming in and when it is going out. Although owners may not be directly responsible for the accounting side of the business, they should at least be aware

It is also important to have a plan in place to ensure that clients pay promptly so that the business can know when to expect a payment.