Budget Projections Offer a Road Map to Success
I know that many businesses do not prepare projections, and among the ones that do, many do not use them to monitor results. Many believe that one of the most important steps in achieving personal goals is to write them down. Preparing and monitoring a budget for your business is similar to a person listing his or her goals. It introduces accountability, and can be used as a road map for the upcoming year.
How to prepare a budget projection
Using Microsoft Excel, list the months in columns across the top with a total column after December, and income and expense accounts on the left. Add a line for total expenses, and below that a line for net income. Insert formulas to sum total expenses and annual total income and expenses in the column to the right of December.
How much money do you want to make? Start the projection by entering the net income for each month of the year. Next, enter projected monthly expenses for each month of the year. Hint: the current year monthly financial statements will be a big help in estimating future expenses. Now, enter a formula in each month of the sales line that adds net income and total expenses. Based on projected expenses and budgeted net income, this will show you the monthly sales necessary to achieve this profitability. Is this sales number realistic and achievable? If not, which expenses can be reduced? Does your business offer some products and services that are more profitable than others? Preparing projections will force you to deal with these issues, and help you understand what drives the profits in your business.
Monitoring business performance
This process is not as overwhelming as it may seem. It will become much easier once you do it, and it is a valuable tool for monitoring business performance. If you need help, contact your CPA firm; they have all the necessary historical data and the expertise in preparation of financial projections.