New year, new beginning.
Never has that maxim been more appropriate than right now, as we look forward to a better year on all fronts in 2021. So, it's time to take care of your business and pave the way to a brighter future.
There's no better way to take care of your business than by smart and accurate planning and budgeting. Here are a few practical strategies you can use to improve your financial security in 2021.
Define and understand your risks
Everyone is a little wiser now about the way in which a global event can impact even a small, local business. Prepare your business with a thorough risk analysis by assessing the likelihood, and the effect on your costs and revenue, of the following situations:
Pandemic. A second or third wave of coronavirus, or a new form of flu
Natural disasters. Storms, floods, drought, bushfires
Workplace accidents. Machinery mishaps, road accidents, chemical spills
Service interruptions. Power, water, telecommunications, transport
Technology failures. Outdated equipment, network failures, skill shortfall
Security. Theft, vandalism, fraud, cyberattack
New government regulations. Restrictions, taxes or levies around water usage, carbon emissions, quarantine
Legal liabilities. Disputes with customers or employees, problems with contracts, insurance or regulations
Financial developments. Interest rate increase, supplier price increases, slow-paying customers
Market changes. Increased competition, reduced demand
Ideally, set up a risk management plan, and insure against the most likely risks where possible.
Set your budget and regularly revisit it
Your business will benefit from a formal budget, rather than a vague list of likely sales and expenses. In its simplest form a budget includes projections of sales and other revenue, by year, quarter or month, as well as costs under the same detailed headings used in your profit and loss statement.
Having a budget will help you set goals and make better business decisions, and is a standard requirement when you apply for finance. There's a useful government website offering guidance on budget preparation.
But budgets should never be set in concrete. Half-way through the financial year, your figures may already be out-of-date. You may need to revise your budget, or get a better idea of where your business is going via a flexible monthly forecasting system, including cash flow projections.
Overestimate your expenses
Now that you fully understand your risks, one of the worst things you can do is underestimate your business expenses (and its converse, overestimate your revenue). It's much better to manage your expectations and avoid disappointment by being ruthlessly realistic about what your costs could be. Add some contingent wriggle room by adding 10-20% to your best estimates under each expense heading.
As long as your budget says you're still breaking even, and you continue to rigorously monitor your actual expenses when they occur, you may be able to look forward to a pleasant surprise instead of a nasty shock.
Don't underpay yourself
The fortunes of your business depend heavily on you. So, while paying yourself first, and paying yourself well, may sometimes seem like an unattainable goal, plan to put your own financial welfare at the top of the list.
Work out a reasonable salary, as paid by companies of similar size in your locality. Then, aim to pay yourself regularly and formally, preferably using accounting or payroll software. An owner who takes a reasonable salary can be another plus point when applying for business finance.
New year, new finance needs?
Contact your broker to find out how we can help you with finance for your 2021 business goals
Original post by Bank of Queensland