The Power of a Budget
By Tina Zawila
Our best and most successful clients review their financial statements regularly sometimes monthly, but at least quarterly. This regular and real-time review of how their business is performing allows them to make decisions and implement business improvement strategies throughout the year to ensure success.
However, the businesses that also use a budget are the ones that are really able to home in on the areas of their business that need attention. By taking the time to set a budget at the start of the financial year, and then actively monitoring business performance against that budget, they are able to easily identify if they are on-track or off-track before it’s too late to make changes.
Sure, it’s relatively easy to check your bank account, or maybe the bottom line on your P&L, but what if the result isn’t what you want…where do you look then?
With a budget on hand, you can see if the poor result is due to an overrun in expenses (on a line-by-line basis) or if your sales/revenue is less than what you were hoping for. Then you can make decisions on what to do next. Is it just a timing difference? A few big expenses that won’t re-occur, or additional stock purchases? Or does your sales team need to ramp up?
At UHY Haines Norton we use a process called bottom-up budgeting where we start with the bottom line – your desired profit – your return on your investment and/or labour. Then we add on your overheads/fixed expenses, calculate and add on your cost of goods sold to arrive at the sales/revenue target you need to reach to achieve your bottom line. We can then determine how to achieve that sales/revenue target in terms of monthly, weekly or even daily goals, maybe even the number of items you need to sell or services you need to provide. Using this same methodology, we can also calculate your break-even target sales/revenue. That way you can easily monitor your progress as you go.
Without this information how do you know if you are achieving your financial goals in business? It’s too late once the year is over to look back and wish you made changes in the first few months.
It’s not too late to prepare a budget for 2021/22. Contact the professional team at UHY Haines Norton on 07 4972 1300 we would be happy to do some bottom-up budgeting with you.