Thursday, August 18, 2011

Budgeting Basics for SME Businesses

Budgeting lies at the foundation of every SME business’ financial plan. It is the key to a successful and efficient financial management (if done properly). However, it is often overlooked.

On the surface it seems that budgeting is a tedious financial exercise for your small business, especially if you feel your finances are already in good order. However, good budget can really help your small business keep its spending on track and even unearth some hidden cash flow problems that might free up even more money to put toward your other financial goals.

So if you do not want to learn the value of budgeting the hard way, try to learn some tips on budgeting basics for SME business.

Amanda Falconer, the successful proprietor of the Sydney Small Business Centre, offers courses to help enterprises run more efficiently. She advises small business owners to make a five year-plan and a detailed operating plan and budget for the next 12 months. In her experiences, she also advises small business owners to pick a point five years in the future and determined the value they wanted the business to have at that end point and worked back from there.

Furthermore, Falconer also used another important resource in building her budget and five-year plan. Falconer used the Australian Taxation Office statistics on net and gross profit ratios by industry sector which shows broken down average figures that were achieved by start-ups, established businesses and best practice for each sector as well as data such as typical wages to revenue that ratios businesses can use to help them determine an appropriate budget plan.

Falconer also revealed that she also asked a financial management accountant to develop a detailed budget model into which figures such as staff numbers, sales targets and net profit to see how the business would grow could be inputted. Then they put the budget into their accounting software so that at least monthly they can compare actual performance with projected performance.

Source: Budgeting basics for SMEs - The Sydney Morning Herald »

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