1 February 2021
If 2020 taught us anything, it’s that change can happen quickly and without much warning. No matter what industry you were in, every business was forced to reflect, adapt and change to a new normal last year. And with the start we’ve had to this year, 2021 is shaping up to be no different.
To help see what might lie in the future, a budget is an effective tool any business owner can use to help forecast their business’ future. A month by month map of what you believe your business will achieve, a budget requires you to use your knowledge of your business to have an educated guess about how your business will perform. And this starts with some basic assumptions.
The assumptions behind a budget are your safety rails. Basic assumptions will be based on whatever metrics drive your business, such as:
- Number of meals served per day.
- Number of hours per day charged for each apprentice.
- Number of kilometres travelled per day.
The assumptions are where you start and give you a real and practical basis for comparison. For example, if you expected your apprentice to charge out 130 hours this month, but they only charged out 90 by the end of the month, you can start to look at the reasons behind this. Was there enough work? Was all the work charged? Was all the work charged invoiced? What went wrong?
Conversely, if the hours were more than expected, why did this occur? Did the apprentice do more work while someone else did less? Did they step up and smash the work out? Did they charge more simply because they worked all weekend?
A budget is your starting point. It sets the expectation of performance by which you can measure yourself and then compare what you thought would happen with what actually happened. Without a budget, your business has no way to compare and adjust accordingly.
Think of it this way. If your son or daughter came home from school and said they got a B on their exam, would that be a good or disappointing result? If you expected them to get a C, it would be a great result. However, if they were on track for an A, it’s probably not so good.
Similarly, when your business makes a profit of $25,000 for the month, that could be a great result if you expected a profit of $5,000. But, on the other hand, it won’t be such a good result if you were expecting to make a profit of $60,000.
A budget is like looking into the future. To get one underway for 2021, talk to your adviser or get in touch with the Findex Consulting team who can walk you through a budget, help identify your assumptions and keep you on track every month.
Findex NZ Limited trading as Findex.
While all reasonable care is taken in the preparation of the material in this communication, to the extent allowed by legislation Findex accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.
The information contained is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider whether the information is suitable for you and your personal circumstances. You should seek personal financial advice before acting on any material.
© Findex Group Limited 2021. All rights reserved