Five Tips For Creating A Successful Business Budget

Sound financial management starts with a strong budget. For a small business, a budget is the single largest influencing factors for a number of decisions, including business operations and expansion. There are a number of reasons you need a business budget in place:

> To know at a glance, how much money you have for business and operations-related expenses, including business expansion

> To prove credit-worthiness to investors or lenders

Tip #1. Understanding the business objectives

What industry do you belong to and what is the nature of your business? Your budget depends on the goals you establish for your business. If you own a small business, you need to consider several factors:

> Infrastructure requirements, including office space, computer systems, manpower resources, and other expenses such as potential hiring costs

> Expenses for business development activities, including marketing and promotional efforts

> Time and cost expenses for research and planning, including attending events

> For production industries, a calculation of costs associated with procuring raw materials may also be necessary

Tip #2. Review your existing financial status

Check your existing balance sheet and income statements. Take into account your income tax returns and cash flow statements. If you have already incurred expenses towards the business, such as earmarking office premises or purchasing equipment, costs towards these can serve as useful benchmarks for initiating the budget development process.

Furthermore, investigate the tax liabilities for your business. Begin with the IRS website – a useful starting point for understanding tax allocation. Accordingly, budget for setting aside some amount of money, based on average estimates.

Tip #3. Outline the expected costs

Look for historical data on work or services performed by businesses with similar goals and objectives. This can include cost estimates. On your spreadsheet, carefully note approximate costs for each of your objectives and business goals. If you have reliable past data, use it as a starting point for extrapolating and creating estimates that are affected by inflation or appreciation. Ideally, create annual estimates that can be broken into monthly estimates, if needed. Remember, if you are taking into consideration long-term investment expenses, then an annual estimate proves better.

Tip #4. Define the budget for costs

Now that you have estimated costs, establish an upper limit for the same expenses. Ideally, put your data on two or three different Excel sheets so that you can access it easily. If you spot patterns, such as an increase or decrease in annual costs, note this and use it as the basis for your budget allocation to account for appreciation or depreciation. To start, your figures can closely match those of the historical data you possess. Specific changes can be made as you progress.

Tip #5. Review your budget

At the beginning, your budget ideally should be reviewed on a daily or weekly basis, depending on the type of business you operate. As a clearer trend emerges, you can further define costs, instead of working around estimates. A working budget maintains enough flexibility to accommodate for new entries on a daily basis, if required. For example, if your business involves daily sales, you will benefit from reviewing them on a daily or at least weekly basis. This will assist in developing more realistic estimates and allocations for specific functions.

Analytix Solutions
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable bookkeeping and accounting services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.

Budgeting vs. Forecasting for Small Businesses

For many small to mid-sized businesses, the pending close to the calendar year parallels the close of the fiscal year. Businesses begin budgeting and forecasting for the subsequent annual period. "Budgets" and "forecasts" become forefront in everyone's minds. The terms often are applied interchangeably, yet both serve very distinct but essential functions. Budgets and forecasts work best when applied in conjunction with each other.

Budgets- A budget is a defined set of financial objectives that designate where a business needs to be. It guides a business in its financial decision making by acting as a control measure in maintaining financial solvency, as well as establishing growth objectives. Typically, a budget is created prior to the beginning of a company's fiscal year and is a static document.

The budget preparation process can be lengthy and complicated, as it must represent the overall financial objectives of the company, incorporate upper management's input, and include realistic, attainable, cross-departmental goals. It assists in holding departments and managers accountable by establishing clear corporate objectives.

Forecasts- A forecast is an ongoing assessment of "actuals" so that a business can evaluate where they stand based on their established budget. It allows companies to plan and account for fluctuations in their operations due to changing market conditions or unforeseen circumstances. A budget represents where a business needs to be, whereas a forecast represents where the business actually is.

Forecasts are performed frequently (often monthly) and should incorporate scenario planning to predict best case scenario, worst case scenario, and most likely scenario. Forecasting helps businesses make adjustments in their operations so that they are not caught off guard by a cash flow deficit, which could have huge, negative implications for a small business.

Both budgeting and forecasting are essential practices for any business. However, they are critical to small to mid-sized companies which can be impacted more dramatically than larger companies by seemingly minor fluctuations in expected revenue or expenses. Whereas a large corporation may be able to absorb some variance, small to mid-sized business are more sensitive to these fluctuations which could have a greater impact.

We are currently offering a free analysis of your business processes, including the budgeting and forecasting process. If you would like to learn more on how Analytix Solutions can help move your business forward, please call me directly at 781.503.9004 or email me at sales@aixsol.com

Satish Patel, CPA
President, Analytix Solutions
Satish Patel, Founder-CEO of Analytix Solutions, has more than two decades of experience as a CPA. He has also advised small and mid-sized businesses on diverse matters such as valuation, accounting, and finance. His experience extends to raising capital and arranging for finance from angel investors.

Avoid These 10 Bookkeeping Mistakes By Automating

Poor financial health is often a major contributor to the failure of many small businesses. Financial health is directly linked to efficient and accurate accounting. Particularly for small businesses, where resources and budgets are tightly rationed, automation often proves to be the best way to ensure efficient accounting and subsequently timely, updated financial reports.

Why automate?
Automation reduces dependency on trained and skilled manpower. Therefore, over time, automation can also impact a company’s bottom line. Following are 10 mistakes that can be avoided with the judicious use of automation.

1. Not tracking expenses diligently
It is easy to forget about recording an expense once a transaction is complete. Automation can help resolve this by ensuring all expenses are tracked. This strategy also applies to reimbursements, especially when small business owners may be covering expenses from their own funds without applying for reimbursements from the company.

2. Doing it all yourself
Most small businesses do not hire a trained bookkeeper for fear of incurring higher costs. Automation solutions can assist in effectively ensuring expenses are tracked and books updated.

3. Delaying account reconciliation
Account reconciliation is a critical step in the bookkeeping process. For business owners performing this function themselves, it is often relegated as a task to complete later. However, this opens the door for small errors to snowball into larger accounting mistakes. Automation can reconcile business books with bank and card accounts on a regular basis, thus highlighting discrepancies that may arise.

4. Tracking small 'incidental' purchases
Oftentimes, expenses which are smaller than those stipulated by the IRS guidelines remain unrecorded by business owners. However, these small expenses accumulate and could be beneficial to track for tax purposes. Even small expenses add up to help you qualify for effective tax deductions.

5. Reduced human interaction translates to reduced chance of fraud
Bookkeepers have the opportunity to commit fraud, especially embezzlement. For a small business, such losses can have huge impacts on profitability, as well as morale. Apart from implementing failsafe controls, automation also reduces dependency on human beings, therefore reducing opportunities for fraud.

6. Ensuring back up
Automation helps create updated reports and more importantly, accounts that are tracked and contain recorded data. As opposed to manual bookkeeping, automation can generate reliable trails and ensure accurate financial data.

7. Misclassification of employees
Once configured, the chances of misclassification of an employee are greatly reduced in automated systems. A small business could have a number of different resources, including part time employees or those working remotely. The IRS has various rule classifications for each employee category when it comes to calculating tax. An automated system leads to reduced errors and more accurate tax filings, regardless of the number of employees in the business.

8. Not making the appropriate deductions
Only a trained accounting professional knows for certain which tax deductions to take. Forgetting to deduct sales tax from a sale is a common error. For business taxation purposes, this error can prove costly because it displays a higher amount of sales.

9. Creating wrong categories
Bookkeeping is all about creating categories and ensuring the right figures are assigned to the right categories. Automated solutions can help by creating the correct categories and ensuring these are updated accurately. Updating the wrong category can result in larger issues at fiscal year-end.

10. Stronger management of petty cash
Most businesses maintain a petty cash reserve for minor expenses. However, it is easy to lose track of the money withdrawn from this reserve. With automated bookkeeping, expense tracking can ensure updated records of withdrawn funds and balance the remaining reserves.

Consider automation for your business to help ensure the integrity of your accounting.

Analytix Solutions
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable accounting and bookkeeping services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.