Having in place a realistic budget and then reviewing your performance against that budget regularly is imperative to operating a successful business.
What is a Budget?
A budget is an estimate or even a financial goal of how you would like your business to perform over a given period.
Usually a business will put in place a financial year static budget that details the monthly revenue the business will generate and the monthly expenditure you anticipate will be incurred, leaving you with a net profit (hopefully).
You may also put in place a budget for capital expenditure. Your static budget remains unchanged for the period it is prepared for.
A flexible budget is designed to be adjusted throughout the period based on changes both internally and externally to your business.
So Why Do You Need a Budget?
If you don’t know what you’re aiming to achieve from a financial perspective it makes it very difficult to evaluate your actual business performance.
Sales teams are constantly monitoring their actual performance vs their budget and monitoring your overall financial performance should be no different.
But having a budget in place isn’t much use to your business if it isn’t being reported against regularly.
Regular meetings with your advisors to review actual results vs budget is a great way to keep on top of how your business is tracking, as well as discussing any issues and potential solutions currently in the business.
Key performance indicators (KPIs) are another great way to monitor your business performance and can be set across your business departments.
From a financial perspective an example of a KPI is your gross profit margin (revenue – cost of goods sold). Other KPIs across your business might include monthly sales value, conversion rates, staff utilisation, etc.
If you can afford to (in terms of both time and money) then a monthly ‘catch up’ with your advisors to review your financial information and discuss your business will bring enormous benefits. As an absolute minimum business owners should review their financial information on a quarterly basis.
Your catch up with your advisors doesn’t necessarily need to be face-to- face; with tools like Skype, Google Hangouts & the like, virtual meetings are a great way to quickly and easily run through your numbers and discuss any pressing issues.
Does your business need a budget and regular financial reporting? Contact ProAMS today.