Cashflow and Budget in Small Business Workshop

David Balwin:

So what you are going to do here is that you are projecting out for the next 12 months when you think your cash will come in. Budgets also tend to be static so once you have set your budget up you don’t normally don’t change it for the year. What you then try and do is try to explain variations between what has actually occurred and what was budgeted for – you don’t simply change the budget to reflect what the actual is. So you should be able to explain why there is a variance between budget and actual. And that explanation, the better that explanation is the better you will be able to manage the process.

This one here, as I said you can project out where you are going to go for the next 12 months, and then you can work out which month you are going to be short of cash and which months you think you will have surplus cash. That becomes really important – and with cashflow you do adjust it month to month. So, month one which will normally be July, at the end of July, you go back and you actually but in the actual for July. Update your cashflow for July, because then you might then come back and say “Well July was suppose to be super month but it has been a terrible month I’d better start looking at the cashflow for the other months and start adjusting them to reflect what is really going to happen.” And so it means you keep updating all the time to reflect where it’s at. And over a two or three year period, your cashflow should get more and more sophisticated and more and more relevant to what actually really happens. The first time you do it you can be all over the place – sometimes it’s hard to predict what’s going to happen over a twelve month period of time.

Now Dan, if you had a really really cold winter, you might find it’s down twenty percent more than what you anticipated but if you have an incredibly mild winter, you might be up fifteen to twenty percent on what you anticipated and that’s not necessarily easy to measure year to year as we all know what the weather is like time to time.

Ok, what’s a budget look like. As I said a budget is basically reflects your profit and loss. So it doesn’t have those, like if you purchase a car or take out a loan those don’t appear here at all. Purely looking at your sales, your cost of goods sold, and what your expenses are and then coming to a profit at the end of the month. And then you just carry forward your profit to the end of the year until we see where your profit is. You can vary these to reflect what’s relevant to your business.

Who here sells more than one product? Fair few OK. Up there, it just has open stock and in this case you may or may not have stock depending on what type of product you sell, but the relevance is how much detail should your budget go to? I would suggest most small businesses don’t go deep enough. If you showed fifty thousand dollars profit at the end of the year, are you going to be happy. In the main – Yes – You’d think that was a pretty fair result. Question being is – you wouldn’t because fifty thousand is not going to get you much of a house – but you might want a million dollars activity. But what I’m getting at though is if you’ve got six products you want to know how each one of those is going. Because if you have three products that are doing super well and generating that profit but if the other three are actually making a loss, they’re actually holding you back and you are actually better off getting rid of those three and probably make an eighty to ninety thousand dollar profit. But if all you’re recording is at the top level – just “sales” in general – it doesn’t give you enough detail. Now if you take a software package like MYOB or Quickbooks (actually I’m not quite sure about Quickbooks) but I certainly know MYOB does, they have categories – they have things called “categories” and “jobs”. So you can allocate a job to a particular sale. So that job might be “Yellow Lollies” and you might have another job called “Blue Lollies” – or Kathy, you may have things like “office stationery” then you might have “furniture and fittings” or “furniture” and something else, so you actually look at each one of those as a job so you can generate a little profit and loss and a little budget on each one of those and see how each of your main product lines is actually performing against budget. And then you can bring that together in terms of total budget. But really, if you do have a number of products, you do really need to go down to that level. It’s not good enough to simply – and Dan, it’s the same with you mate, if you’re selling six different physical education programs – fitness things, then you want to know how each one is performing. Is it giving you the return you expected it would – and if it’s not then you either have to go back and revamp it or look at dropping it and getting rid of it. But if you’re simply saying “oh, I’ve got three thousand for the month – that’s a good month because I got that in”, you really could be saying “well really it’s actually a terrible month – if I actually got rid of the rubbish you could actually be making five thousand”.


So somebody like me where it is all my time, that would be my hourly rate.


Yes – but when you say “it’s all my time”, tell me some more.


I’ve obviously got other expenses that are included like wages and things like that, but if you broke it down to each individual one, like I could actually bring that down to hourly rates after – what do you think? I don’t actually have a product, but if you say “service is a product”.


If, are you doing a lot of this service that is quicker, easier more profitable or are you bogged down in hard stuff which takes you longer which you’re not charging – so you know what I mean? You are still charging the same hourly rate for that as opposed to that?


No they’re all different hourly rates.


Have you got your’s boken down into carpet cleaning, lawn mowing …


Each one of those is a product in its own right and you need to cost that in terms of revenue, expenses and revenue individually. You are obviously going to have overheads that are spread across, just for example, the electricity in this room, you can’t really say that belongs to sales or it belongs to marketing, you have to say, ok that’s an overhead we have to spread across everyone, you might do that by floor space – so if you have X floor space at a certain percentage, this one here’s floor space – you just have work out how you allocate overhead cost. Insurance – I mean, once you have taken out insurance for the year, it really doesn’t matter if your sales are a million dollars a year or ten million, you’re still a thousand dollars a year insurance, so you just split that accordingly. Does that make sense? So whatever you do – if you’ve got carpet cleaning if you have mowing, each one of those you need to determine what revenues should come in from each of those because if you, for example, mowing – if you do three hours mowing and that generates X dollars, but you could actually spend that time doing carpet cleaning generating X + Y – which one should you be doing?


Carpet Cleaning


Correct. And that is why you have to get that split to see which one is viable and which one’s not or how you do the combination to give you the best result. That makes sense?

So at the end of here we’re going to come to a profit and loss each month and we’ve just said if that’s the case, if you make a loss, you work out why – you go back to individual things.

Balanix Solutions – Accountant, Business Advisor, Bookkeeping.

Situated in Strathpine on Brisbane North, we partner with our clients to assist them in their accounting, business management and bookkeeping needs. Our clients vary in industries from professional services (such as law, vet and dentist) to the trades (mechanic, bricklaying, plasterer etc), hospitality and retail. Are clients are located in the Pine Rivers area (including Brendale, Lawnton, Albany Creek and Eatons Hill) through to Kallangur, Petrie, North Lakes and Caboolture, as well as Brisbane South, the Gold Coast and various other parts of Queensland.

Call us today … we can help (07 3264 4783)

Apps that Help with Your Fading and Easily Lost Receipts

"David Balwin Accountant CPA Registered BAS Agent Australian Institute of Company Directors Brisbane Strathpine Brendale Albany Creek"

David Balwin
CPA | Accountant | Business Advisor

I was listening to the radio while driving to a client last week when there was a discussion about receipts that fade due to the low quality paper and ink used – which is fair enough for retailers to use to cut costs.  The discussion centred around the need, by law to keep receipts, and businesses’ difficulty when they fade and in some instances are very small.  The law only requires that businesses registered for GST provide a tax invoice, it does not state that the receipt must be of sufficient quality to last five years – the length of time businesses are required to retain receipts in general for tax purposes.  But there are other good reasons to keep the receipts, not just for the Taxman:

  • Insurance Claims:  The length of time required to be held is for the life of the item covered unless you can provide proof of ownership by other means e.g . motor vehicle registration.
  • Claim on warranties:  Normally need to hold receipt for length of the warranty or extended warranty, however recent court cases suggest longer periods where the court viewed the good should have operated for a longer period of time without fault occurring arising in a claim.

We all know the types of receipts I am talking about – petrol stations, major retailers such as Coles & Woolworths, carparks and just about any business that prints a receipt through an EFTPOS machine.  These receipts are particularly prone to fading when left in strong sunlight or placed in certain types of plastic sleeves.  Even when they are not they have a habit of fading within a relatively short period of time.

So what are some solutions to this issue.  At Balanix we scan all receipts relating to the business as it is easy to store in terms of costs and space (no more files or boxes full of receipts stored in the back room).  Computer memory these days is pretty cheap compared to ten or twenty years age so it is easy to hold onto the receipts for as long as required.

But the discussion on the radio introduced an alternative way of storing those small receipts.  Simply take a photo of the receipt on your mobile phone (either android or iPhones) and use an applicable App to store the information which can then be downloaded later in PDF straight to your computer.  This appears to be a great device for the business owner or employee on the go all the time who does not have the time to keep and manage his/her receipts.

There are a number of these Apps which are free and simple to download.  Examples are (there are heaps out online so these are just examples):

We at Balanix are happy to discuss with you how you might go about this process and what you need to make sure that you comply with relevant legislative requirements.

Stay safe – is your BAS agent registered

"David Balwin

David Balwin
CPA | Accountant | Business Advisor

The Australian Taxation Office advises that if you use someone to prepare or lodge your business activity statement (BAS), you need to make sure they are registered with the Tax Practitioners Board (TPB). If they are not registered, there are significant risks to you and your business because they:

  • are acting illegally
  • may not have the qualifications and experience required of a registered BAS agent
  • may not have professional indemnity insurance cover
  • disqualify you from the protection available under the penalty safe harbour provisions which we administer.

The transitional registration option is only available until 28 February 2013.

Don’t take their word for it  …  ask to see their registration certificate or check the Register of registered and deregistered tax agents and BAS agents on the TPB website.

You will find Balanix Solutions on the register!  Need a professional bookkeeper on Brisbane North (Strathpine) – Call us – we can help!

(Source: ATO SME Communicator December 2012)

Choosing a Bookkeeper – Part 3

"David Balwin

David Balwin
CPA | Accountant | Business Advisor

OK, from the previous two Blogs in this series we have gone through the process of establishing a potential bookkeeper is qualified, experienced and professional to do your bookwork.  The final hurdle is what value to your business can they be.  Good bookkeepers will recommend good financial processes and systems to ensure sound financial controls.  Further, they will use audit controls, back-ups and reconciliation reports to ensure control and accuracy of the accounts.  Good bookkeepers will have the skill and knowledge to develop financial reports required by your business and assist with cashflows and budgets.  Check that your bookkeeper:

  • suggests and recommends changes to financial processes and systems to ensure better financial controls.
  • uses quality systems and controls.
  • uses audit controls in their bookkeeping.
  • can produce management and financial reports regularly to support you and your business.
  • can assist with the development of cashflows and budgets.

Click here for more information.

Choosing a Bookkeeper – Part 2

"David Balwin

David Balwin
CPA | Accountant | Business Advisor

In the previous Blog we looked at how to make sure your bookkeeper has  sufficient accounting knowledge and skill to accurately look after your books.  In addition, good bookkeepers should be a member of an accredited industry body (eg. CPA Australia, Institute of Certified Bookkeepers) and can demonstrate commitment to continuous development so they are up to date in their knowledge and skill.  If a bookkeeper will be preparing your BAS they need to be registered with the Tax Practitioners Board and comply with all their requriements.  Good bookkeepers will have appropriate insurances (eg, professional indemnity) and conduct themselves professionally.  Questions to ask a prospective bookkeeper are:

  • are they members of an accredited industry body.
  • are they a registered BAS Agent.
  • can they demonstrate commitment to continuous development.
  • do they have appropriate insurances.

In the final installment in this series, we will look at the value add a bookkeeper should be providing to a business owner/manager.

Click here to find out more about Balanix Solution’s bookkeeping Services.