A More Useful and Meaningful Budget
Do you prepare an operating budget for your business each year?
If so, how useful is it?
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When do you plan to start the budgeting process? Many successful companies start at least two months before the current fiscal year ends. This allows ample time for planning, setting goals, developing and refining assumptions, gathering information, reviewing and tweaking several iterations, and then finalizing the budget before the next year starts.
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Does your budget reflect your operating goals for the year? Is it detailed enough to enable you to truly analyze your actual revenues and expenses? The better your analysis of your expenses, the better you are able to control them.
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Is it monthly? That is, do you prepare a monthly budget for all twelve months of your fiscal year? Doing an annual budget and dividing by twelve to get a monthly budget doesn’t result in a monthly budget that is very useful. (See below regarding seasonality.)
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Is your monthly budget based on historical performance by month, modified to reflect new goals and planned changes for the upcoming year? Reflecting the seasonality of your business in your budget is very important.
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Do you budget revenues first and then budget expenses at the levels that will be required to support operating at that level of sales? For instance, will you need additional salespersons, production employees or administrative staff? Will you need to purchase equipment — and have you considered the impact this will have on your cash flow?
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Do you plan to compare your actual monthly and year-to-date revenues and expenses to your budget, and do you plan to research and analyze the variances? The comparison of actual results to budgeted results and the research of variances produce great information — knowing why actual results varied from anticipated results is valuable to owners and managers in making business decisions. Read more in our earlier article, “Monthly Financial Analysis: Are You Doing Enough?” (Read more)
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After you prepare your operating budget, do you prepare balance sheet and cash flow budgets?
The NextGen CFO professionals are here to help you develop budgets (and/or a three- or five-year business plan) and analyze variances. Call or email us to schedule a free consultation. (Contact Us) |
