It is that time of year again. The trick-or-treating is over, you set your clocks back, the leaves are changing colors and holiday travel plans are being made. Then you read blog posts and articles reminding you that it’s time to put together your budget for the coming year. Are you excited, indifferent or frustrated?
Creating a good, ambitious, yet achievable budget for the coming year is one of the most important management activities a business owner can do to improve performance. The budget sets the goals, targets and expectations for the coming year.
Establishing a budget sets parameters for major decisions and daily business operations. It also creates a road map that we can use throughout the year to determine if the business is on track or if the business owner needs to make adjustments.
So, what are the key steps in getting through the process successfully?
Start from Scratch
Do not just take the last budget and pick a new revenue goal. Build the model from the ground up starting with your net profit goals for the year.
Get input from your team
When looking at sales, profit margins, expenses and other budget factors, get input from the people in your organization. In many cases they are closest to the work and their participation helps garner buy-in to company goals
Create the budget month-by-month
To get a true picture of how the year will flow, it is important to build the budget by month. Sales and expenses do not flow evenly over the year and the budget should reflect the likely highs and lows for each
Capture your assumptions and be able to defend them
How much will sales increase? What will gross profit margins be? What will payroll be? How will other expenses increase or decrease? What is the rationale for each of the assumptions being made?
Let your budget drive your actions
Once the budget is complete and you have documented your assumptions, you have a road map for what needs to happen in 2018, what needs to be achieved in sales, profit margin and expenses for the business to succeed.
Measure what happens
With each passing month throughout the coming year, measure the actual performance of the business against the budget, and when things are off-track, make changes in your operation to get back on track.
With the right process, your budget will be a tool, a road map to help you guide your business to success in 2018! Is there something we missed? Have Question or comments? Would love to hear feedback in the comments section below.