You need a budget.
I could leave it right there because it doesn't come more straightforward than that. If you own a business, before you get too far into 2019 you need a budget.
But I'm a chartered accountant, I would say that wouldn't I? Some people take a bit more convincing — especially when it comes to sitting down and preparing a budget for next year. It really is one of the most vital tools that will help you achieve your goals next year, so please stay with me. You'll be thankful, I promise.
There's something we refer to as 'lifestyle break even'. It's that level of business that enables you to meet all your obligations at home — and actually live — and also means that you are meeting all your business obligations. If you're not operating at your lifestyle break even, chances are you're in trouble.
Budgets are what help you figure out what you need — in terms of turnover, profit, machinery, staff etc — to achieve your lifestyle break even. And because budgets are future-focused, they're not just accountability tools that help you work out whether you're on track now, they're also strategic tools that help you plan wisely for next year.
Budgets paint a picture of what the expected performance of the business looks like. They inform you about the appropriate activity to make sure it happens the way you've planned it. They help you understand, for example, how big your team needs to be and what size your client pool should be, to achieve the turnover you need. You can't just say you'll turn over $5 million and change nothing to achieve it. You must do something to make it happen, and that's where a budget comes in.
A budget can be a visionary document, in the sense of putting down what you want to achieve. It can form part of a strategic plan. It can follow your company's vision document to keep that vision on track.
In some organisations, a budget is more about figuring out what you need to survive. Once you know you need to turn over $100k a month just to get by, you'll soon figure out what level of performance you need from your staff to get there. At the smaller end of town, a new business starting out may have the assumption it needs to charge out roughly 40 hours a week at $25 an hour. Doing a budget may help you discover that you actually need to charge $50 or more an hour or you're not going to make it. That's the benefit. Because it's future-focused, a budget sparks the conversations that lead to practical and helpful planning.
So, a good budget is a tool for measuring performance and for comparing actuals with expectations. It's also a way of stating those expectations. It helps you figure out if you can do what you're planning, how much it's going to cost, what plant and equipment you need to do it, and what you need to turn over to make all of that happen.
A good question to ask as you approach the end of 2018 and start planning for next year is, if you repeat what you did this year do you have a future? A budget will help you analyse that by evaluating your assumptions. A budget will help you think about the future and answer the question, what do I want out of this business?
I've said it before and I'll say it again…this is the perfect time of year to be thinking about the future. We can help you prepare for 2019 with a budget that achieves all the above so that next year is better than this one, and produces the outcomes you want.
From now until March, we're here to sit down and start that process with you.