How Planning and Budgets Make Business Better

When I come back to work after the summer break, I spend the first week or two planning for the next financial year. I like to get a head start on it when I’ve been out of the nitty gritty of day-to-day stuff and when we’re not so busy with clients’ work.

It’s important to plan what you want the business to achieve, then look at what it has done in the past and work out how you’re going to bridge that gap.

The financial aspect of a plan is a budget. And because cash is king, the even more useful version of this is a cash-flow forecast.

It’s not unusual for a client to ask us to prepare one for them because the bank has asked for one. It then gets handed to the bank or put in a drawer and promptly forgotten. That’s about as useful to the business owner as an annual set of financial statements we prepare long after the year end to calculate the tax payments!

But a budget and cash-flow forecast can be very useful to help manage the business.

They help you to:

  • see what cash is likely to be flowing in and out of the business and when.
  • predict what the tax impact will be of a growth (or decline) in sales.
  • understand the impact of small variations in margins.
  • work out break-even points. What’s the minimum sales you need to stay afloat?
  • prove to your bank that you understand your market and run a well-managed business.

I recently prepared one for a client and then showed him the effect that just a 1% increase in GP margin can produce. I thought he knew that, I’m sure I’d mentioned it to him in the past. But it wasn’t until he saw the figures for himself and the effect it could have on the bank account that he “got it.”

All business owners know they should be doing this planning. They know they should be measuring actual results against budgets through the year. But it’s one of those jobs that just gets left in the “too hard” basket.

As Accountants we’re trained in preparing budgets, and modern accounts systems make gathering the past information easy. We can help you with one. What we can’t do though is predict the sales and understand at what points the business will need to expand expenses, when it will need a new employee, or bigger premises. We need the business owner/operator’s input for this; after all, it’s their market. So what we do is prepare a draft of previous years’ information then sit down with you to discuss the expected sales, staffing levels, and even where any expense savings can be made. Then we pull it together into useful documents and can enter it into your accounts system so it can be monitored.

Give us a call if you would like us to help you with your budgets and cash-flow forecast.

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