Budgeting isn’t just about getting your finances for the year; it’s also a fantastic way to motivate your team going forward. In simple terms, budgeting is like giving a direction to your ship.
And because money planning is often the source of many a migraine for business owners, here are some tips that I will share with you. (Don’t worry I’ve kept them simple) :
- Prepare monthly budgets and not yearly. It’s like breaking down your goal into small achievable parts.
- Start with the sales budget. And effective sales budgets should be coming from the sales team, as that will bring a sense of belonging and accountability for those targets.
- Have a clear goal in mind—for the long term and the short term, and this should be conveyed to the sales team as well.
- Senior management and the sales team should be in sync. It’s a team effort! Senior management should be focussed on long-term company goals, and they should ensure that the sales budget is aligned with the long-term strategic objectives of the enterprise.
- It sounds simple, but break down your income statement between Sales, Direct Cost (Cost of Sales), Salaries, Rent, License cost and other office expenses.
- Once you have budgeted for Sales, make sure you use the correct percentage for calculation of the cost of sales or direct expenses. This will vary from business to business.
- After sales, budget for salaries of employees. This is key. If you are looking at recruiting new hires to meet your targets, then please ensure you have budgeted for their visas, medical insurance, air tickets as well. Also, budget for annual airfare, medical expenses and annual airfares for all the employees.
- Be realistic in your revenue targets, but at the same time, they should be challenging as well. Your budget should be organic and challenging.
The most important ingredient in the recipe of budgeting is a monthly analysis of your performance through monthly reporting.
This is the backbone of budget success. When you get a monthly report which shows the variance between Actual vs Budget it helps you to take corrective and timely action if required.
Identify the reasons for variances and then respond sooner rather than later—delays can be fatal for your business.
In a nutshell, budgeting sounds very easy in theory but requires far more determination when applied. It is planning the whole year ahead with revenue and cost and following up each month on actuals and adapting to changed circumstances.
It is crucial that your sales team, operational team, and accounts team work together. All of them should have clear goals and KPIs, and they should be monitored and discussed each month. Your accounts team should have the capability to scrutinize the numbers and prepare a structured report for the management.
If done correctly this could act as a motivational tool for your company. There should be incentives set for meeting the set sales and operational targets. You should also think about different training that may be required for your staff members to achieve the goals and take the company to newer heights.
I wish you all good luck with your budgets both professional and personal.