As self-employed tradespeople, your business is often affected by seasonality and the economy. Learning how to budget to survive in leaner times – and factor in expenses such as tools, travel and equipment – is the key to business success.
If you’re in the building and construction industry, you’ll know just how seasonal work can be. But there are a few ways you can weather the dry periods and cash in on the busy times – and it all starts with building a budget.
If you’re not sure where to start, financial management software can help you create a budget that covers all aspects of your business trade. With a few simple clicks, you can chart your income, expenses, lines of credit and estimated tax payments.
What’s more, you can incorporate your budget into your business plan and vice versa. This will help you stay on track to achieving your business goals.
1. Calculate your income
Depending on whether your business operates in weekly, fortnightly or monthly cycles, include a breakdown of your different lines of income.
This may include:
- Salary or wages
- Invoice payments
- Tax income (including VAT)
- Fringe benefits
- Bank interest
By working out your income each week, fortnight or month, you’ll get a clearer picture of where your business has peaks and troughs. This might encourage you to focus your time and skills on a particular area or client, or diversify your business to spread the risk of an economic downturn.
2. Calculate your assets
Your assets provide the foundation of your business’ financial position and can be used as equity when applying for lines of credit. A professional financial adviser can assist you in determining your business’ asset worth, which may include a company car, business premises, leasehold interest, plant and equipment, as well as tools of trade.
3. Calculate your expenses
Your expenses are the goods and services that your business needs to pay for in order to stay afloat. These may include:
- Start-up costs (administration, legal fees etc.)
- New equipment
- Marketing campaigns
Once you calculate your expenses and streamline those expenses weekly, fortnightly or monthly, you’ll have a clear idea of what level of income you need to achieve to keep out of the red zone.
It will also help you identify unnecessary expenses, or where you’re paying too much for a particular product or service.
4. Develop a business plan
A business plan can go a long way in keeping you sane, as well as on track to achieving your goals. If you record goals that you want to achieve in the next 12 months to three years, you’ll be more prepared and less anxious in times of economic downturn.
The best part of having a tradespeople business plan is that you can work your goals into your budget to generate realistic and achievable forecasts.
5. Consider cash flow finance
Cash flow finance is an ideal way to keep your trade-based business afloat during tough times, while also giving your business the financial strength to grow.
Cash flow finance is a line of credit that deals with invoices on time, so you can free up your existing cash flow to concentrate on other aspects of your business, like expansion, staffing, stock or new equipment.
6. Get real
Be sure to ask yourself some realistic questions when preparing your operational budget.
These might include:
- What are my start-up costs?
- What was my profit last year?
- Who are my key clients?
- How do I generate new leads?
- Do my invoices usually get paid on time?
- How do I get referrals?
- How can I reduce my expenses?
- Will cash flow finance help my business?
With the right budget and business plan, tradespeople can protect their businesses from the financial impact of an ever-changing economy.
For more information on small business budgets, check out our Five minute business ready budget guide.
Want to get started on your own tradespeople budget? See how QuickBooks Self-Employed can simplify your finances – sign up for a free trial.