As a business coach, I try not to tell my clients what to do. I’d rather they tell me what they want, and I can then help them get there faster and with more satisfaction than they could have without me.
A good budget forecast can tell me a lot about where someone wants to go, and how realistic they are being, or at what level they will have to perform at in order to get there. The numbers don’t lie and they tell a very important story.
Start by breaking down all your figures so that you can see where exactly your revenue is coming from, and what exactly you spend your money on. Then connect the two. This information will surprise you! Attaching as many real expenses as you can directly to a product or a service, allows you to see your true margins. Look at your revenue producers and determine if they really make you as much profit as you thought. Review your overhead costs and calculate your breakeven point on sales.
Set your budget figures for each month of the year, and then every month perform a check on how closely you’ve performed against those figures. This forecast and variance reporting takes your projected budget figures and places them side-by-side with your actual figures. So you start by asking “How many widgets do I think we can sell every month?” Then ask “Why didn’t we sell many as many widgets as we thought we would last month? What do we need to do to get back on track?” Make the adjustments, determine the budget implications, and update the plan. Then keep checking the forecast and variance report to see if it’s working.
If you are running your business looking at old income statements that your bookkeeper has finally completed one month or several months after the fact, you are in trouble.
At the end of the year you will have a map that you can look at with other key stakeholders. That map, that budget from last year, will have last year’s route all marked out. You will know where exactly you went, what you did, and where you ended up. Then ask yourself “Is this where I wanted to go? Did I want to go farther? What’s going on in my marketplace, and what strategies will I employ to hit my numbers this coming year?” When you can see the real net profitability of using different strategies to drive your bottom line, it makes the choice to use them easier and the effort to implement them much more compelling.
I guarantee the time and patience you invest in getting this piece of your puzzle right will be worth it. There are tons of books, you tube videos and other resources to help train you. Talk to your bookkeeper and your accountant, and share the results in an appropriate way with your team members. It’s no fun playing a game when no one is keeping score.