The New Year provides a great opportunity to review your business situation. Once the Christmas festivities are out of the way, it’s time to make your business New Year resolutions a reality.
Many business owners know the improvements they would like to make in their business but many get stuck with the practicalities of devising the projects necessary to turn the business around with the available finances and resources.
The idea of working to a budget is foreign to most SME owners - that’s something that big companies do. Without putting your business plan into figures it is very difficult to make an informed decision about how to improve your business in the coming year and into the future. Are you in running your business without a budget and making critical decision?
Business owners who take the approach that budgeting isn’t for them, often operate reactively and drive the business for the short term, plugging away week by week working out what they need to do with their revenue as it comes in to meet immediate obligations.
By developing a budget for your business, you are taking a proactive approach in your business and most importantly collecting the critical information to make a better decision. Whether it relates to operational challenges, the cost of production or upcoming development expenses, budgeting can be both a “sobering” and empowering experience.
Instead of simply allocating the money that comes through the door, you start with planning for the year ahead and understanding just how much it will cost to run the business and most importantly, what it will take to achieve your goals. Once the costs are understood, it’s very easy to see what sales are necessary to return the net profit target.
There are other benefits of undertaking a business planning and budgeting process: firstly, the business owner gets up to date with the cost of running the business today, while looking forward at revenue projections and the available resources, helps assess the business potential for the year ahead.
Some business owners think that just by increasing sales, the business will become more profitable. In a competitive marketplace, it’s not enough to just want to increase sales. Having control over the profitability of your core business is critical to remain profitable and resourceful, especially during the business development cycle. We all know that business improvement requires spending money and allocating resources in different ways from simply maintaining the business. You can’t get the same result doing what you’ve always done – right? And therefore funds need to be allocated prudently.
Operating your business from a plan puts you back in the driver’s seat. Analysing the numbers that matter ensures you can compare your actual figures to the budgeted figures and get insight into how the business is performing. This needs to be done month by month, and while it requires some discipline, the payback is worth it. It will allow you to manage your spending so that you don’t overspend or eliminate your hard earned profit. You will also be able to see where sales have met projections and if they will cover expenses. Where there are variances, ask yourself why the numbers are different. Identifying key areas for profit improvement while monitoring sales is a critical mix in managing a successful company.
Working your business plan to a budget means having some control of your finances in advance. Setting the standard for your spending against expected revenue and having a tool to compare the expected figures against the actual set each month will give you a way of monitoring and changing plans so as to stay on top of your business. At the very least, it will give you an indication of whether your business is profitable or just busy. How much of your time are you spending putting out fires and working reactively?
Analyse the numbers that matter and make 2014 a year to get back on top by implementing your business plan to a budget with the realistic steps to achieve your goals. Call our consultants to discuss your unique situation on 02 9011 5220.