Yes, all the business books say to create a budget and use it to manage your business. But will it really pay off for you?
Here's a real life example:
A local company with 5 full-time employees and a number of On-call independent contractors sends out crews to shoot video for commercials, speeches, documentaries and training seminars. The owner knew based on the number of jobs booked during the month that they should be making a reasonable profit but he couldn't find it. He never seemed to have the cash he needed. So, is the problem that jobs actually incurred more expenses than he calculated in his head? Or, is it that jobs completed weren't billed correctly? Or, was he not actually doing as many jobs as he needed to meet the fixed overhead? Or, was he not collecting the jobs he did?
Well, it was some of all the above. He found an accountant who helped him create realistic budgets showing how many jobs per year & per month, the related costs and realistic operating expenses. Each month he analyzes his income statements compared to budget and compared to prior year. Even during the month, it helps his staff get the jobs booked, so they can earn incentives built into the budget. They now are a leader in their industry and the bank has no problems extending them loans for equipment, expansion and line of credit.
There are a number of benefits to using budgets as a daily, weekly, monthly and annual tool or scorecard in your business:
Budgets help keep expenses in line with revenue and give you an early warning system alerting you to unexpected windfalls or expenses.
Budgets help you set goals and measure progress toward those goals.
Putting the budget in writing ensures you don't miss any critical pieces and makes the picture clear to you and your staff.
Analysis compared to budget will also help you get loans for equipment and expansion because it will show the lender how the funds will be repaid.
Most common mistakes in budgeting:
Considering the budget a one-time or once a year exercise. It is a dynamic document which can be used to manage the day-to-day business.
Unrealistic budget without the right amount of detail. It's easy to get the big elements and then get bogged down with making projections.
Needing help getting started but not asking for it. CPA's, Accountants and other financial advisors can help you get started. Then, you can keep it going.
Peachtree Accounting Software has a wonderful budgeting tool which allows you to create multiple budgets for the same year. So you can create a best case, worst case & realistic case to move your business forward. Ask JCS Computer Resource.
Below is a basic format to help you get started.
Monthly Budget Format
Line item Definition
Revenue (Sales) The dollar amount of sales for the month
Minnus - Direct costs All of the costs directly associated with producing your product or service. These costs differ from overhead expenses because they usually fluctuate in proportion to revenue.
Examples:
1. Materials for manufacturing
2. Cost of goods purchased for resale
3. Salaries of production/delivery employees
= Gross Profit Revenue minus direct costs: commonly used to measure business health
Minus Operating Expenses All costs associated with keeping the business open
Examples:
1. Rent and Utilities
2. Marketing and sales expenses
3. Salaries of Administrative Employees
= Net Profit The amount of money you expect to retain after paying all costs and expenses.
4.
To find out more about how to use the budget tools in Peachtree, Quickbooks , MAS90 or MAS200 please call JCS Computer Resource 800/475-1047. Their best computer consultant at budgets is Kay Flanery. www.jcscomputer.com
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