Last updated: 18th Oct 2019
Budgeting may not be the most enjoyable part of running your own trades business, but it’s certainly one of the most important. Creating a realistic and accurate budget helps to ensure you’re financially prepared to keep the doors open and the tools on. However, as with most financial matters, knowing where to start can be difficult. Use these five simple steps to create your own financial budget.
1. Track your expenses
It goes without saying that you can’t budget effectively without knowing where your money is going. Whether it’s major expenses like bills and wages, or smaller costs such as parking when you’re onsite, make sure you track every dollar. This will help you understand how much it costs you to operate day-to-day while also making it easier to identify areas where you can cut back. Accounting software tools, like QuickBooks Online, can help you do this, keeping expenses and payments all in one place and synced across your phone, laptop, desktop etc.
2. Be aware of variable expenses
Unlike fixed running costs, variable expenses can change every week or month. They’re expenses required to help you run your business, but you can’t plan for them as a fixed cost. They usually include items such as petrol or material supplies, which fluctuate depending on how many jobs you have that week or month. This can be a tricky part of your budget, so it helps to take a careful look back at how much and how often you make these types of purchases. Once you have an idea, work out an average estimate for your budget. Because these expenses can be unpredictable, it’s always best to make your estimate slightly higher than anticipated. If you spend less than you expected, you can funnel the excess into savings or make a purchase that will help grow your business.
3. Work out your tax deductions
Understanding any potential tax deductions you’re eligible for is important because they allow you to keep track of purchases that will see a return come the end of the financial year. If you’re likely to invest this money back into your business, you’ll be able to clearly see how it affects your budget, and weigh up whether you can afford things like tools, uniforms, and transport in the long term.
4. Set financial goals
If you’re running your own trades business, it’s safe to say you don’t want to be skimming the bottom of your bank account each month. That’s why it pays to think about your financial goals and make sure they’re accounted for in your budget. Do you need more savings? Perhaps you’re looking to expand, or simply have a financial buffer in place to protect you from any sudden, unforeseen cash flow woes. Whatever they are, consider whether they’re feasible within your current budget and, if they’re not, what needs to change to make them happen.
5. Reassess and update
Your budget should accurately reflect your business’s current financial position. If your cash flow has taken a turn – for better or worse – your budget should reflect that. If you don’t, it could lead you to spend more than you should, or hold you back from making the big purchases you need to see positive growth. So, reassess your position and goals every month to make sure your budget is up-to-date and your business is on track.
A budget is the first step in creating lasting change for your business, and anticipating any challenges that could impact your operation. Get started on building your own budget today to see how your business can benefit.
Learn more about how QuickBooks Online can help you hold onto your cash.