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Have you ever noticed how all the corporations talk about “Oh it’s budget time?” or “It’s not in my budget?”. Do you find yourself just winging it by the seat of your pants? Not really knowing if you are making a profit or not until tax time?
Is there is something those fancy corporate accountants know that you do not? Well, yes. There is. Larger firms operate off a budget. A budget tells the story of where you have been and where you want to go in the next year, in five years and most large companies even have a ten-year plan. A budget is simply taking your previous five years profit and loss and estimating what your next year’s revenues and expenses will be. Often, we have a growth goal in mind. Many companies will say “I want to grow but 50%!” but they have no plan to get there. That is like driving with no map to someplace you have never been and expecting to get there three hours early!
Here is what a budget can do for you:
1. It will help set realistic growth goals. 2-3% is a realistic growth rate for most businesses. If you have been in business a while you can come up with a more specific growth rate. Anything more than 3% is doable; however, will mean significant advertising and a lot hard work! I believe this to be one of the biggest reasons for a budget and the most important for a business to track.
2. Allows for tracking of expenses. It will give you and your staff an idea of what you have to spend and still keep the desired profit margin.
3. Reviewing it monthly will give you a snapshot of where you are at, where you have fallen behind. It might encourage you and your staff if you are doing well.
4. It will give you those trouble warnings if there is an issue such as high expense, poor sales team, theft or fraud, double billing, or anything else that might go amuck. By comparing current to budget you will be able to spot large variances quickly.
5. It helps you prepare for emergencies. Let’s face it emergencies happen. No one anticipated Covid-19 shutting down thousands of businesses for months. It happens. Putting funds away in anticipation of slower times is a must for any business who is planning to be around a while. I recommend a six-month rainy-day reserve.
6. It will improve your lending opportunities. Most financial institutions want to see your budget to get a good feel for your business’s anticipated growth. A good solid growth history shows your financer that you know what you are doing and gives them faith you will continue to be a good investment for them.
7. It helps with staffing. Let’s face it, employee expenses are one of the largest expense in most budgets. Looking at previous sales trends can help you keep on top of employee expenses.
Happy Budgeting! Lost still? We can help you make sense of your numbers and come up with a realistic budget for your business.