Budgets and cash flow targets for smaller businesses
I don’t care what size your business is. Having any target is better than none if you want to grow. Having a target too low or too high might either be overwhelming or can leave you unmotivated.
Getting the balance right will depend on how you operate; what works for you personally. I’d prefer to aim high and if I fall short, I’m okay with that. Having a lower target doesn’t push me to work harder. As I said, personal.
Think about what works for you. Then set your targets. Don’t over-complicate this.[Video is less than one minute]
New to Budgets?
If it’s your first time looking at budgets, start off by looking at 2019 in broad terms – total sales, total costs. Review your fixed overheads (the bills you will have to pay whether you make a sale e.g. rent, some salaries etc). Focus on the profit number rather than the sales or turnover number.
How much extra profit would you like by year end 31 December 2020? Work back from here knowing your costs (looking at this year) and be realistic if you need to hire more staff or will have more costs. At a high level, what does this mean your sales for 2020 has to be to achieve that profit?
Whatever that number is, divide it by 12 and if your business is seasonal, take account for slower months. But roughly for all businesses, this gives you an outline of what your sales numbers need to be each month.
Already working with budgets?
If you have targets BE SURE to look at them each month in terms of what worked or didn’t.
The learning from month to month if documented can be substantial. This can help you develop, grow, change and learn quickly. Small businesses have huge advantages over larger competitors that may be slower to change and react to market conditions.
When you don’t make a target, it’s not an exercise in excuses or blame. Move forward knowing what happened and take action to ensure any improvements that can be made, are made asap.
Most important target?
Cash collection! If you want to start getting better with your targets to improve your business operations, focus on cash collection.
Reduce your debtor’s days to as low as possible and deal with old or trouble late payers first.
No matter what target you have CASH IS KING.
If you want more detailed work on this, ask your accountant. They will help you get the relevant information and can review your budget for reasonableness.
1 HAVE A TARGET &
2 USE THOSE NUMBERS
Have a great week
Wendy[2 December 2019]