Chapter 2 – Financial Control – Rule your money
This is part of the ‘How to’ coaching series. An ongoing series of activities to make your business successful. Follow it step by step and see positive results as you develop a robust business model, set on a solid foundation.
Activity 17 – The company has an annual budget and reviews performance against it monthly
One of the benefits of setting your annual budget is that you can visualise all the income verses outgoings for the year. Against this, a monthly review will help you see if you are meeting your financial targets. This information is useful in real-time and also for a historical view when setting future budgets.
Annually, this budget shows when expected costs will need to be covered by. When you put this against your booked and anticipated income you can see what sales and effort is required. By doing this monthly you have the opportunity to amend your efforts and spend rates in a whilst the changes can be more effective.
One key part of any budget is checking that what you have written down is actually achievable. Do you have the resources available? This could include personnel and the space/facilities/tools for them to operate. I’ve seen the results of a sales team that overloaded the capacity of a multi-million pound business, so that it almost imploded.
The key is to set up the monthly (or other regular timescale) reviews with those who have an impact on the results.
The feedback can then be used to drive the business activities and tasks for the next month: also longer term.
The ‘How to’ bit:
Create a budget covering your financial year, showing known and anticipated outgoings.
It is usually relatively easy to list all the ongoing costs, e.g. insurance, rent, rates, phones, service costs etc.
Income usually requires a bit more effort to fill in for the year. A good place to start is with last year’s results. Then look at what is already in hand. Next, add all expected and planned sales, plus a forecast based on goals and targets.
It is important to understand the maximum capacity of your business to supply products/services. It is tempting to show a full order book all year, be realistic!
Depending on your business, you may also have costs associated with the provision of your products/services. Remember to include these on the budget.
There are some great tools you can use to manage your financials. If you haven’t got this in place yet, the good old spreadsheet works well too.
To assess your progress against targets, record the actuals verses planned.
- What was the actual income verses the planned income?
- What was the actual costs for supplying your products/service against the planned costs?
- What was the actual costs of overheads against the planned costs?
This will show you how each financial segment of the plan is performing.
Remember that plans are just that, plans… they may need to change to meet new opportunities or threats.
Even if you make a new version of your plan during the year, it is still useful to view the actual results against the original plan. This will help with understanding the changes, and inform your numbers when planning for future years.
If you would like assistance in setting up your budget, follow this link and Contact Us…