When I talk to business owners wrapping up their years, one of the biggest areas of disappointment and stress is their company’s financial performance. Most had at least a rough budget, yet most hardly looked at the budget or replanned it when circumstances changed. They didn’t do enough monitoring and re-evaluating of the financial performance of their business, which starts with having a financial plan – a budget.
Here is my simple 4 Step Business Budgeting Process.
1. Budget for Profit. Way too often, profit is the last thing business owners think about, when it should be the first and most important part of their budget. Are you okay hitting your sales goals yet not making the amount of profit you had intended? How are you going to reinvest in your company, your team, your biggest investment unless you have profit? The key items to think about – how much do you want to be paid from profit, how much do you need to meet your debt obligations, and how much do you need for rainy days and reinvestment?
2. Budget for Overhead Expenses. This is usually one of the easiest steps, as you can start by simply looking at what you spent the previous 12 months (most accounting software will do this for you to create a draft). Then you look at each category and decide if it will go up, down or stay the same in 2021. Will it fluctuate seasonally, or is it pretty consistent month-month? What expense categories will go up or down based upon team or office size as you grow?
3. Budget for Sales or Revenue. What do you know about your customers’ buying patterns? Your revenue budget should be more than just a number, it should be based on average sales and number of sales among other inputs. For example, will you average 25 clients at $750/client for $18,750 income in the first month? The more you know about the breakdown of your revenues and the number of sales and sale size, the better you can budget and then make actual plans to hit the budget.
4. Budget for Cost of Goods (COGS). This is typically a percentage of your revenues, so you need to know your numbers from last year and have a plan to improve them this year. Not every business has a significant COGS, and if you do it is often one of the untapped levers for increasing Net Profit.
If you are ready for the Best Plan Ever, contact us to schedule your FREE 90 Minute Business Diagnostic session with one of our coaches. We will take a long hard look at where you’ve been, where you want to go, and chart a focused path for you to get there.