For the past few weeks, I have been doing a series of blog posts around financial reports.
If your reports do not tell you a story, then your reports need help. Put another way, if you must “guess” what is happening in your business or what will be happening in your business, then your reports need help.
One new client told me recently, “I am flying blind. I do not want to be flying blind. It really increases my stress.” His message to me was quite simple: Fix it.
Like most clients, this guy was smart enough to fix it himself, but was too busy doing other things that added value to the company. Soon, he will have his reports, and he will no longer be flying blind.
In this blog post, I will discuss a way to make your budget quick and pain-free. It all starts with reports. Let’s review.
- The basic financial reports tell a story of the past.
- The sales pipeline reports tell a story about future revenue.
- The customer retention report tells a story about lost customers.
- The trended income statement tells a story where past performance is a good predictor of future performance.
How quick and easy can the budget process be?
With the reports above, you will be able to prepare a budget quickly. In fact, one client and I completed his budget in a total of five man hours – quick and easy. The more you use these reports and are familiar with the story that they tell, the faster the budget process will be.
Here’s the vision: Preparing a budget quickly, easily and with a high degree of confidence that the actual numbers will be close to the budgeted numbers.
Achieving that vision enables you to make critical business decisions faster and with greater certainty.
Now, let’s discuss the method of accomplishing that vision.
The output of a budget is generally a monthly income statement – revenue, expenses, and net income. Those outputs do not just happen; they are created or driven by certain inputs. The key to developing a reliable budget is identifying and forecasting those inputs. (In certain circumstances, I will also do a balance sheet and a statement of cash flows, but those budget reports are beyond the scope of this blog post.)
To make this process clear, I will use a landscape company as an example of the various inputs and outputs.
In practice, completing the items above is more complicated when you prepare monthly budgets due to seasonal issues. The trended income statement will help you identify seasonal adjustments; seasonality can be part of the story.
Doing a budget before you understand the story told by the reports above is a waste of time—if you do not know the inputs that drive the outputs in your business, do not spend your time doing a budget. Instead, get your reports done so that you can see the story of how the inputs drive the outputs.
What has been your experience with budgets? Do you create a budget? Whom do you involve in developing it? What is your process for developing a budget? Does the budget add value to your business? If so, how? Please share your thoughts and experiences in the comments below.
Now, can you get your budget done in five man hours?