I know this is one of the least favorite topic of many Business Owners. Time to make the Annual Budget. But the Budget is a tool for you to use. It lets you know how much you plan to sell and how much you plan to spend. That way you can measure your performance across the year and know how to adjust your business based on the difference between what you planned and what you have.
For many, trying to create a budget the first time can seem to be a daunting task. This exercise is not a lot different than what I ask startup businesses when they will have a steady-state business. Something that represents the normal. The good news is that an existing business will already have a set of financials, even if they are only understood by the Accountant or Bookkeeper.
There will be 3 areas of primary interest: Revenue, Cost of Goods Sold, and Operating Expenses. Each of these areas will start with last year’s results. Then ask yourself, “What else has changed?” For example, did you introduce a new product or service? Did a new competitor enter the market? Are Insurance Prices likely to rise? The way to deal with this is to look at each of those 3 major line items and to break them down into smaller categories. Then you can look at each category and see if there is any likely change year over year. This can be captured and a new baseline budget can be created.
I want to note here that small changes add up to make a difference. To significantly improve profitability, you don’t need to sell twice as much. You can look at some of your costs and see if you can reduce them. Every dollar of reduced cost is a additional dollar of profit. So, even modest cost reductions with good revenue growth can make a business very valuable.
With all of that if you are not sure where to start, contact a Business Coach like me. They can help you understand how to create a Budget as part of your Annual Plan.
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