Budget Review Time
by Colin Linke on 18/01/10 at 5:47 am
Now that you have worked through your strategic plan its time to turn your focus to what that all means for the business.
Now I am very passionate about the budget and its ability to direct your decision making process. It is the one tool that allows you to make informed decisions about where you will spend your limited resources. It is critical in planning how to tackle the various projects that you have identified in your strategic plan and ensure that you get the best results.
So how does it do that I hear you say.
Your budget, if constructed correctly, will identify when you expect your revenue to flow into your business. Every business that I have seen has a degree of seasonality with its sales. For example:
- Real estate agents major trading period is the spring.
- Lawyers are very busy from February to July and then again from October to Mid December.
- Doctors are very busy through the winter months.
As these periods will see the greatest amount of cash flow coming into the business, it is imperative to know when they are as they will determine what needs to be done to ensure the greatest amount of success.
Now I see many businesses simply say that they will get $2m this year and divide it evenly throughout the 12 months. Sure you can do this, but how do you track your performance? If your budget is for January to December and your strongest months are in June to September, how do you know whether you are on track, if for 6 months you are behind your budget? You simply can’t. So take the time and look at the last two years of your trading and see when the sales occur. Then set your budget up with this seasonality implemented and you will get a better outcome.
Once the revenue is in place, you put into the budget your fixed costs – the ones that cannot be effected easily – rent, telephone etc.
Then you look at your variable expenses and the projects that you want to get under way and look at when you can afford these.
And wallah – you have a budget.
Now I specialise in preparing these and can roll one out pretty quickly but this should take you no more than two to three days and a few two hour bursts. On Thursday I will have a basic template that you can use to at least create a basic budget – which is better than none at all – and try to predict where you will be in 12 months time.
We will also look at some of the pitfalls of budgeting and answer some of the common questions that I am often asked.
