Planning & Budgeting – What’s the Point?

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Posted by Sharon Perry on January 27, 2015 in Accounting, Blog, Sharon's Corner, Small Business

Planning & BudgetingThis might surprise you but I do not plan nor do I budget. Well I didn’t until recently. Even when I started my business 4 years ago, I had to put a business plan and cash flow projection together for financing and bank loan purposes. I did this super fast without a whole lot of care or thought. Looking back, I probably wouldn’t have done things differently. And really, if I thought too much at the time, I probably wouldn’t have started my business because it would have scared me not having the certainty of income. However going forward and as my business grows I find these things becoming more and more important.

With the opening of my new location, I’ve heard numerous times, “you have a real business now!!!”  Shocked at this statement, especially from business associates and friends; just because I worked from home didn’t mean I didn’t have a REAL business. And that’s still true…home businesses are real businesses but…I realize that I got away with less planning and budgeting. Or should I say I flew under the radar of NEEDING these things.

But I did NEED them. I just didn’t give it much time, care or thought. Yes I know I’m an accountant and this is supposed to be my fortay but I would and have always preferred the accounting and tax side of things, not the planning and budgeting.

I have always believed and still do that if I need more money, I make more money. No it doesn’t grow on trees! It grows from the hard work I put in, day in and day out.

But there comes a point when time runs out and you can’t accept any more clients (no need to panic, yes I am still accepting clients!). I am a service based business, like many of you, and we only have time to sell. So the only way to make more money is by increasing your fees, decreasing your overhead or leveraging by adding more staff.

But back to my point…I took a course in the Fall called Profit Mastery with Tom Lewis. It reminded me of the need to know my break even (concept learned back in college), my fixed costs and my variable costs. It reminded me of the reason why we plan and budget.

I like to spend. I like to donate. I like to entertain. That isn’t going to change. But with growing a business, the overhead also grows.

Plan aheadSo the last few months I have spent many hours preparing and analyzing  my budgets and cash flow. Looking at it by month, year, by busy season, etc.

Then in a recent chat with my dad, the most successful business man I know who has had significant ups and downs like most business owners and who continues to have one more success than failure which is really what keeps us afloat, and my greatest mentor…he said to me “have you looked at your daily costs?” How much does it cost to keep your doors open? How many hours in a day do you work before you get paid? How many hours each day goes to your overhead?

So I started a new budget. Looked at all my expenses for the past year, made adjustments for the new ones with the new location, took out the one time expenses from the previous year and also included what salary I NEED to live.

I then took this number and divided by how many days I’m open a year. I was BLOWN away to say the least.

I found that I work 5 hours each business day just to pay overhead. That is pretty significant. Now obviously that doesn’t take into consideration the leverage that comes from staff but if staff isn’t productive, that is my risk as a business owner. Just as it could be yours.

Do you want to run your business just to pay overhead and staff? Probably not.

This was a real eye opener for me. I couldn’t believe what my daily cost was. For me it was far more beneficial than my per client, per project, per hour, per month or per year budget or break even.Time to Plan

But my point is this…we all need to budget and plan. We all need to figure out what numbers tell us where we are going, what we are doing and how to get where we want to be.

Your budget doesn’t have to be pretty, in fact, mine started on scrap paper. Figure out what you need to know to make your business an even greater success and let me know how that goes.

As always, if you need help or guidance, speak with a Professional Accountant. We are always here to help you!

***This blog is for information only.