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  • Writer's pictureRayanne Armand

What is a Payroll Budget and Why Do You Need One?

You've heard of annual budgets, cash flow budgets and marketing budgets - but what about a payroll budget?

What exactly is a payroll budget and how can it help you to manage your business' money?

What is a Payroll Budget?

First things first: a payroll budget is simply a projection of your expected payroll expenses for a set period of time. This could be for a month, a quarter or even a year. By putting together a payroll budget, you can get a clear picture of how much money you'll need to set aside each month to cover your staff costs.

Payroll tends to be one of a business' biggest fixed costs, so it's important to get it right. A payroll budget can really help you to get a clearer idea of your spending and to create projections for the future.

You're not legally required to create a payroll budget or show one to the tax authorities, but it's still a good idea to put one together. It can really help you to keep on top of your finances and budget for the future.

Benefit #1 - Cash Flow

You've probably heard the saying "cash is king" a million times by now, but we're reminding you again, because it's true.

Running out of cash spells disaster for any business. If you can't pay your staff, they won't stick around.

A payroll budget helps you to ensure that you always have enough cash to meet your payroll obligations. By getting a clear idea of how much money you need to set aside each month, you can make sure that you never run into any cash flow problems.

Bear in mind that yearly pay rises are often expected, and some are mandatory. When the government raises the National Minimum Wage, business owners can't just turn around and say "no!"

A payroll budget enables you to keep extra cash aside for these pay rises and ensure that they don't take you by surprise.

Benefit #2 - Staying Lean

A payroll budget can help you to create a leaner business model.

For example, you can try working with contractors rather than hiring full-time staff and see whether this saves you money.

You can trial different solutions and discover the most cost-effective way of running your business. This information can then be used to inform your future payroll budgeting.

Benefit #3 - Benefits

Employers who offer benefits, such as dental insurance, income protection or additional pension contributions, need to factor these costs into their payroll budget.

If you're thinking of offering benefits to your employees, a payroll budget can help you to work out whether you can afford to do so.

It's also a good idea to review your benefits package on a regular basis to make sure that it's still the most cost-effective option for your business.

Benefit #4 - Planning for Growth

If you want to grow your business, you first need to know whether or not you can support that growth.

Additional demand means you'll need extra staff, which in turn will put pressure on your payroll budget.

If you're thinking of expanding, a payroll budget can help you to plan for this growth and make sure that you have the financial resources in place to support it.

Final Thoughts

A payroll budget is an essential tool for any business owner. By creating one, you can gain a clear understanding of your payroll expenses and ensure that you always have enough cash to meet your obligations.

A payroll budget can also help you to stay lean and efficient, and is enormously beneficial when planning for future growth. If you don't already have one in place, it's time to start working on your payroll budget today.

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