Ring In the New Year!
With every New Year, comes lots of hope and excitement about what “could be” next year. Have you done the appropriate planning for your business to be successful in coming year? You’ve probably heard that if you don’t know where you are going, any road will get you there.
As a CPA over the last thirty-eight years, I have observed that the most successful companies are the ones that take time to map out what they want to happen with a business plan, a marketing plan and a budget (yes I said the b-word) for the year. Have you completed yours?
The business plan must include goals and objectives, assignments for which person is going to complete them and due dates. The marketing plan needs to have specifics about sales, what will generate them, costs and timetables. The budget should be broken down by month for expected income and expenses.
The expenses are usually the easy part, the sales are usually educated guesses based on history and upcoming goals and the marketing plan needs to be designed to make the sales and goals happen.
All of this needs to be in writing so that you can compare the budget numbers to actual results so you can measure how your company is performing toward your goals. If goals are declared and converted to budgeted numbers, you can modify your game plan when the actual results are below the budgeted numbers.
Tools For Preparing Your Budget
This allows you to keep working toward achieving your goals. If you
don’t have a budget, how do you know whether you are achieving your goals and when the game plan needs to be modified? Preparing budgets can be prepared in several ways. I am going to focus on three:
- Excel Spreadsheet
- Accounting program tool for budgeting
- Business Plan Software
The simplest and basic budget can be created in an excel spreadsheet. You can create an excel spreadsheet from scratch, but this is the hard way. Many accounting software programs allow you to export financial data to excel spreadsheets and then you can modify the numbers for next year.
With the QuickBook’s budgeting tool you start with historical data and modify it for next year or increase it by a specific percentage by month or copy the same number across the months in a specific line item. Both of these methods deal only with the budget numbers.
Business Plan Software
A Business Plan Software is not only to be used before you start a business, it should be used each year. It walks you through detailed specifics by breaking it down and posing questions like: how many units by product line do you expect, not just total revenue numbers.
After answering a series of questions, the software creates the spreadsheet into a financial statement format.
Once you decided how you are going to prepare the budget, I recommend reviewing the last 3 years of actual financial data in side by side columns, as this gives you historical data to determine what strategies worked, what didn’t and what you are planning to do the next year.
Some items are fixed per month or are known due to contracts and commitments for example, rent, subscriptions, payroll, etc. Many items are based on levels of revenue. Then review each item, make decisions, review, tweak and finalize it.
You aren’t done yet. Put the budget into your accounting software so that reports can be generate frequently for actual compared to budget.
Differences are OK if they can be explained but if they can’t be explained the business course should be modified to achieve the desired goals the next month. Otherwise, you will end up at the end of the year and you haven’t gotten anywhere close to your goals.
Remember to plan everything per month and use the monthly time frame for planning and measuring and adjusting along the way. Remember plans can be modified if they are established, if they are not, then you are running by the seat of your pants and things just happen and usually not how you imagined it.
Set dates throughout the year to review actual to budget and modify as necessary, put them on the calendar and don’t postpone them.
How are you going to achieve your goals? I believe that business owners are busy but they don’t focus on profitable activities and thus not achieving their goals.
Every day, prepare a list of 5-7 items on a “goal notepad” that have to be done to stay on target for your goals and generate income and don’t let email or anything else interrupt you until they are completed.
I challenge you to try this for 30 days and see if you are more profitable and achieve your goals and Rock your new year!