The final budget we are going to look at in this series is the cash flow budget.

Quite often the outcome of the cash flow budget and the profitability budget are confused – while most people are able to recognise that they are different reports, there is difficulty in determining why.

The cash flow budget is a schedule of the anticipated inflows and outflows of cash – the main thing that sets it apart from the profitability budget is remembering that there are many inflows and outflows of cash that do not affect your profitability!

Some of the common inflows of cash which are not profit items include:

• owner contributions
• proceeds of loans
• proceeds on sale of plant and equipment or capital items*

Some of the common outflows of cash which are not profit items include:

• loan repayments**
• finance repayments**
• owner drawings

The other item that has a significant impact on cash flow, but does not relate to profit, is the GST (Goods and Services Tax).

Any business registered for GST will have inflows being the sale amount plus GST and outflows being the expense amount plus GST – the GST does not form part of the profit and loss statement, but the BAS (Business Activity Statement) payment or refund should be accounted for in your cash flow budget.

I hope this helps to clarify the difference…

Regards

* Part of these proceeds may constitute profit on sale, but it is unlikely the whole amount will be a profit item

** Part of these outflows may relate to interest which may affect profit, but it is unlikely the whole amount is a profit item

The profitability budget is used to forecast the financial results of an enterprise for a specified period of time.

Most businesses will start with a 12 month or financial year profitability budget – but these can be broken into smaller instalments or parts of the year such as six monthly, quarterly or monthly.

The profitability budget focusses on the overall revenues and expenses of an enterprise, including the items that contribute to the overall profit or loss which may not be cash items (such as depreciation).

One of the greatest challenges when preparing a profitability budget (particularly for a start up enterprise), is where to start!!  I recommend looking at similar businesses, the figures of the previous owner, benchmarks from the Australian Taxation Office (ATO), and good old manual thought processes!

Hopefully you will be well researched in your chosen business by the time you get to preparing your profitability budget, particularly for the following items:

• sales – think about the goods or services sold, the customer or client base, prices and volume – and you’ll have a good basis to start
• cost of goods sold – if you are selling product, use your research and apply the costs to the sales figures you have determined
• wages – your staff requirements will also depend on the type of business you are operating, but wage rates can be determined via Fair Work – don’t forget to include superannuation and workcover…and some remuneration for yourself!

I hope this helps with your budgeting processes, good luck!

Regards

Today I’d like to talk a little about some of the “not-so-obvious” items you need to budget for in a start up enterprise, either new business or acquiring an existing one…

These items are in addition to your general profitability and cash flow budgets – while they impact on these budgets, the below items are generally one off, but can play an important part in the ongoing success of your business.

Firstly, you should always consider any lag in time before earning (and receiving) income – this lag time will depend on the type of business you are operating, but it can be significant!  The reason this lag time needs to be determined is that while you are waiting for the cash to come in…there will usually be expenses that need to be paid.

The other two items I want to mention are accounting and legal – every new business owner should seek accounting and legal advice before entering into an arrangement!

I’m sure you can all appreciate that seeking legal advice is of utmost importance and can save a lot of headaches down the track…

And in defence of my own occupation – most new (and second and third time around) business owners need to seek advice on the appropriate structure for their business and the taxation implications.  Included in this initial advice might also be assistance in setting up and training in accounting systems to enable a smooth operation in this area…all of this will be of help when it’s time to complete your Business Activity Statement (BAS) and year end financial statements and tax return.

So if you are considering entering the business world, make sure you allow for these items when you are preparing your start up budget, getting good quality advice from the start is paramount – of course if you need help, you know who to Contact!

Regards

It’s “Frivolous Friday” and after the busy few weeks I’ve had, I’m asking myself this question – where does the time go?

I know that I am considered a very organised person, you never find me far from my diary and I love making plans – even if it means they are well into the future!

I’m about to embark on my third trip to Melbourne in as many weeks – don’t get me wrong, I LOVE Melbourne…but how bad is it that it took me all yesterday afternoon to catch up on three weeks worth of washing?? (lucky I have a lot of clothes…)

We’ve just seen the end of March pass us by – as an Accountant this is a pivotal date!  Apart from being the end of another financial quarter, we are now well and truly into the business end of the financial year.

If you are yet to lodge your 2014 tax return and you’re after some help, please get in contact as soon as possible.  Likewise, if you are considering any major business changes or software installations…now is the time to start thinking seriously!

Of course I wouldn’t have my life any other way, I love being busy and making the time I can for my clients, my family and my friends.  Now I best go knuckle down for the day…there’s plenty to do – have a good one!

Regards