Develop a Reasonable Budget and Reforecast Monthly
Just like creating a vision that others can embrace, monthly budgets and forecasts are needed for your business to move forward successfully.
Your budget should be finished by the first week of each year—even before if possible. Finished means fully documented, accepted, and understood by everyone involved. Without a budget at the beginning of a new year, it’s easy to get off to a bad start.
Once the budget in place, you must live by it. All too many companies treat their budgets like suggestions. After putting the time and effort into creating them, they never use them. Your budget is a critical management tool for keeping cash flow under control and profitability on course. So, use it.
Make it Visual
One of the best ways to set your business up for success is to stick to your budget. Track your expenditures and expenses monthly and compare actual figures against projections.
Create a regular monthly chart that shows whether you’re generating cash or using cash—and by how much—on a T12M chart. Track operating expenses such as selling, general, and administrative (SG&A) as a percentage of sales using the 12MMA chart.
Don’t Get Stuck, Be Able to Adjust Your Sails
Budgets are fundamental to a business, but they also need to account for change. It’s critical to reforecast results monthly because it’s easy for things that made sense when the budget was created to be out of line five or six months later.
Since planning for the future is one of the best things you can do for your business, make sure your budgets adapt for the future too by reforecasting. To reforecast monthly, use a financial statement format that includes a column to reforecast your year-end numbers.
Reforecasting on a monthly basis allows you to be more agile and respond to changes more quickly. By reforecasting you can spot discrepancies in the budget sooner and get any problems under control faster.
Take a Deeper Dive
Additionally, after each quarter, evaluate the results by conducting a major business review. After each business review, discuss how the original budget faired with your team and if any changes will need to be made for the future.