Structured budgeting is the key to keeping your business on track. To implement structured budgeting, you need to calculate your true operating costs – all forms of input should be costed: capital, intellectual, physical and material. A properly detailed budget reveals what prices should be set to cover all expenses, including the cost of goods sold or services provided.
Typically, there are four components to most budgets:
Profit and loss statement
In setting up a budget structure, there are two possible starting points:
Budgeting based on past performance – using the figures for the past 12 months as a basis for calculating costs, pricing and turnover.
Zero-based budgeting – calculating costs and pricing afresh.
You should also review your fixed and variable costs, such as, labour, sick leave, loadings and holiday leave – and always remember to pay yourself first.
By having such a system in place, you can measure the performance of various parts of your business and make more realistic estimates of turnover, and assessments of income versus costs.
Funding for business
You may be starting a new venture, or need additional funds to expand. Naturally, the best capital is the money that costs you the least. You have several choices and each has a different impact on your cash flow. You may consider an overdraft facility, a fixed interest loan, business loan, commercial bill or fully drawn advance.
Or, you could explore these opportunities:
Equity capital – Investors (who could be private individuals) buy a share of your business providing you with funds to establish or develop further.
Debt finance for short terms – A bank or financier provides finance for temporary or seasonal working capital for periods of up to 3 years.
Debt finance for medium terms – A bank or financier provides finance for general working capital, plant and machinery for 3 – 10 years
Debt finance for long terms – A bank or financier provides finance for assets (such as buildings) for temporary or seasonal working capital for a period of more than 10 years.
Determining the right loan or source of capital for your business requires careful consideration. It is unwise to borrow too little, since it could stifle production and/or the service needs of your customer base. However, borrowing too much could mean you are overextended and the repayments are greater than your cash flow.
Your decision must always be measured against your goals and level of comfort.
Which is most tax effective business equipment finance?
It’s time to upgrade your business car. You found a right one. You probably need to get some form of finance because you don’t want to dip into your business capital reserves or use personal finance to purchase your business car.
There are many ways to finance your business equipment purchase. The most common business equipment finances used are leasing, commercial hire purchase and chattel mortgage.
Lease A lease is basically a rental agreement in which you obtain the rights to possession and use of the property in return for a series of rental payments. This lease is sometimes referred as an operating lease.
Commercial Hire Purchase The financial company retains ownership until the business pays it off on a principal plus interest. Interest is tax deductible and the business can claim for tax deduction for depreciation. Business can elect to have repayments scaled down in the early years of a CHP contract and to make a ‘catch-up’, or ‘balloon’ payment, at the end of the contract.
Chattel Mortgage Identical to commercial hire purchase agreement. Key difference lies in ownership and full GST credit can be claimed on purchase on cash accounting.
Which one of the above methods gives you maximum tax deductible benefits? Please click Which Finance button and see comparison among leasing finance, commercial hire purchase and chattel mortgage.
In the comparison you will also be able to compare the total cost of ownership among the three and work out which one is your preferred way to finance your business car.
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These materials on this website are general in nature. It is made available on the understanding that the JH Business Services & Taxation is not thereby engaged in rendering professional advice. Before relying on the material in any important matter, users should carefully evaluate its accuracy, currency, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.