Small businesses in Australia have faced numerous challenges in 2024 thanks to rising prices, increased fuel costs and high interest rates. These factors have led to budgetary imbalances and cash flow issues for many companies.
Even if you started your year with a clear budget laid out, by this mid-point, you may have noticed that some of your assumptions haven’t come to fruition, cash flow is becoming an issue and it feels harder to run your business than it used to.
Firstly, if you are wondering why things feel like more of a stretch lately, consider that most mortgage holders have had to contribute several thousand dollars more to their mortgage over the last twelve months than they did a year or two ago. That money has to come from somewhere, and it’s why many businesses are having a quiet year in terms of turnover and profits. Discretionary spending is down, and this has flowed through to impact both the B2B and B2C markets.
To help you regain control of your budget during the final months of 2024, here are seven practical steps.
Step 1: Assess your current financial situation
Understanding your current financial status is crucial.
Begin by examining your profit and loss statements and balance sheets. Compare this month to last month, and this year to last year, to get an idea of where your accounts are. Identify areas where income has decreased or costs have increased by drilling down into the details. You will probably find areas where you are spending money completely unnecessarily.
Take a look at percentages so you can see which areas are taking up the most space in your budget. For example, if you started the year expecting your production costs to be 20% of your overall revenue, a look into your accounts may reveal that this figure has increased to 23% or more, either because your costs are going up or your revenue is going down.
If necessary, seek help from your bookkeeper or accountant to format your profit and loss statements for easier analysis. This will help you understand the root causes of your current financial challenges.
Step 2: Reset your financial expectations
Given the shifting economic landscape, it's essential to redefine your financial expectations and plans. If your budget isn’t under control, you need to decide whether you will continue to invest in your business despite lower profits and cash flow, or if you need to cut costs to maintain profitability while the market is under pressure.
Your goals should consider both short-term circumstances and long-term sustainability, plus your confidence about whether things will turn around in the near future. For example, you may be overspending on vehicles at the moment but know you will definitely need your entire fleet in 2025. In this case, it’s worth pushing through and taking the hit to your profits for the short term. However, if there is no guaranteed income in sight that will cover the cost of your fleet, it’s time to make decisions about spending less, either by restructuring your fleet or cutting costs in other areas.
Step 3: Create a realistic budget
Adjust your budget to reflect the current economic reality. If the budget you created at the start of the year anticipated growth that isn't materialising, revise your expectations. A big mistake people make when creating budgets is to assume everything will stay the same. As the last few years have truly shown us, change is the only constant!
If you keep finishing the month with a financial deficit, look at every expense line by line. Determine if each cost is necessary and cut any superfluous expenses.
While complex budgeting tools and software can be useful, a well-organised spreadsheet in conjunction with your accounting software (like Xero or QuickBooks) can often suffice for creating a realistic and effective budget. If you’re a client of Financial Fanatics, we can help you with this. Get in touch to talk about how we can support you.
Find out more: Watch the full Masterclass on how to reclaim control of your business budget in 2024.
Step 4: Implement and monitor your budget
A budget is only useful if you actively apply it.
Regularly compare your actual income and expenses against your budget to identify variances. This will help you stay on track and make adjustments as needed.
Tools within your accounting software can help you create variance reports, which compare your actual figures to your budgeted figures, highlighting any discrepancies. Regular monitoring ensures that your budget remains a living document that guides your financial decisions.
Again, your bookkeeper can help you set this up! You need to stop running your business based on gut feeling, so submit a request for regular reports and make the most of the services that your bookkeeper has to offer.
Step 5: Leverage financial tools and resources
While complex financial forecasting software exists, often a simple spreadsheet combined with the right accounting software will meet your needs. However, for many businesses, regularly updating a detailed spreadsheet and working with a bookkeeper who can ‘drive’ Xero for you so you have access to up to date reports can be just as effective.
Consult with your Financial Fanatics bookkeeper to determine the best forecasting and tracking tools for your specific circumstances.
- Get on top of late payments
If people owe you money, your finances will be stretched very thin. If a customer has passed their payment term, contact them to follow up. For one-off transactions, consider requiring deposits so you have working capital in your account. For smaller transactions, avoid offering credit to new customers because they will wait until the last minute to pay.
If you're struggling with cash flow and can't pay your suppliers on time, reach out to them early. Inform them about your situation and request a brief extension. Most suppliers will appreciate your proactive approach and willingness to communicate.
- Work with a bookkeeper
Meet with your bookkeeper on a monthly basis to chat about the highlights of the month and the areas where financial holes are emerging. Come armed with questions and aim to learn from the meeting. You can never abdicate responsibility for the financial management of your business but your bookkeeper will help you understand what’s going on. The added bonus of working with Financial Fanatics is that your bookkeeper will have clients in similar and different industries. They will be able to give you tips based on what’s working for other businesses.
Finally, if you want to stay in control of your business budget, I recommend you implement Profit First. This will help you get into the habit of understanding your business numbers, following a system and ensuring you are putting profits aside.
Need help to manage and control your business budget? A bookkeeper can support you to keep things on track. At Financial Fanatics, bookkeepers for small business start from $199 AUD per month. Contact us to find out more.
