Embrace budgeting to move towards your success goals.
Your budget is a critical part of your business blueprint for success. Think of budgeting as profit planning. If you have a profit plan in place, you can truly track your income and expenses in a fashion that gives you a clear plan for increasing your revenues and where to cut your overhead.
The operating budget is your blueprint for success, allowing you to set financial goals and map your progress against those goals. A cash flow budget lets you track how much money you have on hand to pay your expenses.
The budgeting process will help you identify weaknesses in your operations. Make sure you are asking the following questions will clarify where to begin your budgeting process.
• Can you increase sales?
• Where can you cut operational costs?
• Are collections holding you back?
The variables that can improve will become evident once you crunch your numbers. If you think you will see increases in sales or changes in expenses, then forecast your assumptions and put those figures in your budget.
Don’t worry about being perfect. Your figures are your best estimates. You are creating a baseline for your business’s performance.
Budgeting is a powerful tool for planning, control, and decision-making. Adjust your budget to reflect new things you have learned and what you are going to do differently. Review your budget variance report.
Use that report to determine how to modify the remaining months in your three-month budget. Add a new month to your budgeting so that you will have three months of budgets.
To help with your planning with your operational budget, ask yourself the following questions:
- How much do you expect to grow, and how will that impact monthly income (sales)?
- Will you hire new staff, when and how will it affect your payroll?
- Will you need to increase your marketing? Will you require more salespeople? Will business travel also rise?
- Will your other expenses increase? Rent? Overhead?
- Are there specific significant expenses associated with your growth? If so, what are they, and how much?
- You have had a year of the pandemic. What will change from your spending in the next three months?
Once you have answered your critical questions, you can adjust your figures from the previous months using your assumptions. To budget for success, be sure to consider essential issues in your operational budget:
- What systems do you have in place to assure growth?
- Do you have sufficient staffing and physical space to accommodate growth?
- If you need additional staff, have you included other payroll, taxes, and overhead in your planning?
- Remember to cover balance sheet outflows such as loan payments.
Map out a quarter (three months) of sales and spending for your budget growth plan.
Build a forecast and budget for three months. We are in volatile economic times. Allow yourself to project for only three months and revise as need. Keeping an eye on weekly spending will serve you well.
- Export your latest P&L financial report and add four columns:
- Add three for the next three months, one column, “Assumptions,” for documenting how you arrived at your figures, and a “Total” for calculating that row of your forecast.
- Estimate the cost of each expenditure by entering amounts.
- If your expenditures exceed your sales, think about what you will do about it.
- Involve employees who have direct knowledge of critical expenditures and their timing.
- Be real conservative and flexible.
- Share your assumptions and forecast with staff.
- Create an environment where everyone feels that they are participating in the growth and success of your organization.
- Automate your financial data tracking. Use tools that provide you the profitability of each product/service, so you are on top of your sales and expenses with each sale. With the latest figures all in one place, it will be easy to update your projections, create hypothetical scenarios, and modify your figures as needed.
- Track your actuals versus your budget. By forecasting a week at a time, you will be able to reverse course or adjust easily without waiting for monthly closings to know where you stand.
Monitor, measure, and adjust.
- Budgeting for your Contingency Fund. Risks must be quantified in your planning process. Being prepared for the unexpected is now a requirement.
Contingency planning means having strategies and action plans to deal with changes in the business environment.
The best way of dealing with this uncertain time is to include contingency funds in your contingency budget – extra funds to deal with unforeseen events.
Why have a contingency fund?
Having contingency funds in your budget helps you keep your operations running smoothly in the face of changes in the business environment that result in revenue shortfalls or higher than planned expenses. Your team has funds available to increase marketing expenditures to address an unexpected slump in sales. Suppose a project turns out to require higher than scheduled staff hours to complete.
In that case, you can maintain the project going by tapping into the contingency funds to cover the unexpectedly high personnel costs.
You are building this fund from your current financial position. You do not know what new “twists and turns” will be occurring in our near business future. What can you do now?
- Cut overtime and excess staffing as much as possible.
- Focus on discovering areas of waste.
- Minimize supply.
- Streamline your operations by automating administrative tasks.
- Automate repetitive tasks to save time and further reduce your expenses.
Determining what amount for your contingency fund?
Each organization must approach contingency planning based on what risks currently exist in the next three months. There is no magic formula for calculating the correct amount of contingency funds to include in your three-month budget.
Entrepreneurs often underestimate the cost and time it will take for their venture to reach positive cash flow. If you are experiencing slow but steady growth, be consistent in funding your contingency.
Your employees are critical to your budgeting process, but more importantly, achieving your budget goals. Allowing employees to provide feedback and contribute to monitoring and adjustments helps with a sense of shared burden, but it also gives employees a sense of value.
Allow your teams/department heads to create budgets for their team/department. You consolidate but also show each employee how essential they are to the bigger picture. An open process allows everyone to be on the same page and develop mutual respect’s contributions to your business.
There are many positives to creating your three-month budget. Trust your people to assist you in defining:
- Financial performance and forecasts
- Key objectives & business goals
- Key performance indicators
- Potential industry changes (including market, clients, and competition)
- Staffing changes
- Personal investment and salary
Success is dependent on planning for the future. When the inevitable crisis or an unexpected burst of success approaches, having a plan of action set in place will allow you to be better prepared to conquer any situation.
#accucomp – Virtual CFO services: Our business is your success.
Feel free to reach out to book a conversation by going to https://www.accucompenterprises.com/lets-chat/.
If you prefer, email us: firstname.lastname@example.org.
Plan! Adapt! Manage! Succeed!