Small businesses are no different than the big ones. Both need prudent financial planning to make profits and maintain stable growth. It is almost impossible to generate revenue until you start putting your money in the right projects, and this knowledge comes from effective budget planning. A thoroughly prepared budget allows you to track the flow of cash, forecast the profits, conserve the cash reserves and learn about the expenses.
With a well-defined budget, you are in a better position to analyse the availability of funds and their utilisation. This is the reason why many consider financial planning to be the lifeline of a business. If you are an entrepreneur or intend to purchase a business for sale in New Zealand, then you must put your heart and soul in drafting the budget with the help of your bookkeeper.
It will assist you in identifying the weak links and emphasising on the strong ones. However, you must make it as comprehensive as possible and must include the following four things to improve your organisation’s performance.
1. Estimated Revenue
The money you make from the sale of your products and services is the revenue generated by the business. While creating the budget, you have to make an estimate of how much money the company will make in the coming month, quarter or financial year. It is essential to have monthly, quarterly and annual figures to create short-term and long-term goals that can be shared with the employees.
However, this does not mean building castles in the air. You need to be realistic and use precise sales forecasting. You can take a cue from the sales figures in the previous years to get started. If you are doing this for the first time, then set achievable goals keeping the competence of the organisation in mind. You must leverage market research, competitor analysis and use your own business knowledge to make approximate estimations.
2. Business Expenses
It is probably the most significant part of the budget as you will have to allocate an amount for all the inevitable expenditures and put a cap on the ones which can be adjusted. Shortage of money is one of the primary reasons start-up businesses fail, thus you need to keep a close eye on the spending. Some expenses are recurring while others are a one-time investment or keep changing. Here is a list of the ones that should become a part of the budget.
If you are operating out of home, then you are sorted. However, when you grow big and move into leased office property, you need to set aside an amount as the rent. On the other hand, if you decide to purchase a property, then you will have to include the loan instalments in the plan.
This will be a regular and timely payment that will have to be made every month. You will also have to bear in mind the expenditure of using electricity, water, lawn mowing, snow removal, housekeeping and janitorial assistance, internet support and other professional services required for maintenance of the property and a hospitable working environment.
Equipment And Machinery Expenses
If you are buying equipment, furniture and machinery, you can mention these things as fixed assets with a depreciable value in your budget. However, if you are making the smart move of leasing the stuff, then you must include these in the recurring expenses. You can include office supplies such as stationery and computer accessories among these expenses. Include any vehicles you will be hiring for office use in the costing as well.
Wages And Salaries
When you have a team of workers, you will have to pay them regularly according to the payroll system which will again be a regular cost to the company.
Businesses in New Zealand can get a variety of insurances depending on the type of the organisation such as public liability insurance, professional indemnity insurance, employer’s liability insurance, statutory liability insurance and the in-demand cyber liability insurance.
Advertising And Marketing Cost
It is an essential part of the budget as you will have to invest a good amount in the initial years of the acquisition to gain market share and attract more customers. It must include all the platforms such as website hosting, social media marketing, online advertising, print ads, point of sale material, outdoor media, etc.
3. Gross Profits
A business determines its gross profit margins after deducting the total expenses from the revenue. It is the money that you keep after you have paid for everything. At times, an organisation can generate a lot of revenue but still be in debt because the expenses are way ahead of the income. It is usually a result of spending money on projects that are not making an impact on the target audience and are failing badly.
Thus you must spend according to the revenue you expect to generate from the business. If there is a dire shortage of capital, then you can also increase the prices of your products to gain better profits. However, this can be done after you have become a dominant player in the market and have a sizeable loyal customer base which will not be deflected with a price rise.
Another way to improve sales is to boost your marketing campaigns which will lead to higher sales volumes and in turn amplified profits.
4. Cash-Flow Projection
It is a critical factor in maintaining a positive bottom-line and eliminating the chances of a liquidity shortfall. It is imperative for small businesses to forecast how much cash will come into the organisation and how much will go out during a defined time period. It allows the management to understand the current status of finances and how they need to be altered to grow the profits.
The cash-flow projections help in striking a balance between the receipts and disbursements. If the outgoing is higher than the incoming, the business can delay the payments and expedite collections for some time. If things are getting out of control, then the management can put more capital into the business by inviting investors or taking business loans.
A budget is a vital tool for the economic management of an organisation. Thus when you are looking for business opportunities in New Zealand, you must get acquainted with the crucial components of the financial plan. It will help you to limit your expenses, improve sales and gain excellent profit margins.