“Defining what you need to earn is crucial to your business and personal finances. It is essential that you identify what you need to pay your suppliers, employees (if you have any), what your tax bill is likely to be and how much you require to take out the business to pay for your own personal and household expenditure. If you don’t know exactly how much you need then an estimate will do, although I would advise that you are cautious about how much you think you’ll need. It’s recommended that you do this for each month of the year and ensure you always have this budgeted for the following twelve months ahead. You could do this for both your business and personal finances but it’s suggested that you keep them separate. This will give you a forecast of when and how much tax you may need to pay and what your regular expenses are estimated to be for the year ahead. Remember to consider seasonal costs such as insurance, Christmas and/or other holidays. Planning ahead will help you to budget which allows you to keep money aside for anticipated expenditure. Budgeting stops you overspending – something that is easy to do if you have forgotten you need to pay for something in a couple of months. This leads to peace of mind over your finances.”
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A chapter extract from our book 12 Steps to Improve Your Cashflow