Developing a monthly operations budget can help the owner and key management team analyze the operations against a pre-determined benchmark.  This practice will highlight operating problems, allowing for any needed corrections before they become larger problems in the future.  By including your key managers in the budgeting process you can greatly improve the final product.  They have the experience and understand the challenges they are facing every day.  They also may have that one innovative solution that can save your company dollars well into the future.

Budgets should include percentages against the total revenues of the organization and have a section for ‘comments and assumption’.  Each budget should be analyzed against actual performance on a ‘line-by-line’ basis from the profit and loss statement.  Each line should have a variance column reflecting how actual performed to budget. 

Using the budget as a financial analysis tool, you can identify where your organization is performing above the estimated budget and possibly duplicate those positive actions throughout your organization.  You can also identify where your organization is under-performing to budget and either correct a miss-calculation on your budgeted profit and loss statement or identify an area where you need to improve and correct an immediate problem.  

Not only will you be able to benchmark against your budgeted profit and loss statement, you can also benchmark against a budgeted cash flow statement allowing you an insight to what your cash needs will be on a monthly basis.  Each of these budget statements should reflect any seasonality your business may experience.  Having this information will also greatly improve the quality of your discussions with your lender.

Let me know what you think.

Take Care

¿Hola, cómo es usted? or Bonjour, comment allez-vous ?

Can you read and understand either of these two phrases? 

If you can read and understand either phrase, you have most likely taken a class in Spanish or French during your school days.  Is it prudent for us to think we could understand either phrase without having some type of training in that language?  Most of us would say no.

Well, reading and understanding your company’s financial statements without having the proper training is just as difficult as trying to understand either of these two phrases without having the proper training. 

Most business owners launched their businesses in an area where they have a specific talent and often have years of experience practicing the technical aspect of that business.  But they may not have years of experience reading and analyzing Profit and Loss statements, Cash Flow statements, and Balance Sheets.  In order for owners and managers to make the best business decision for the future sustainability and growth of their businesses, they must understand their financial statements to the point they can read them and analyze what these statements are telling them about their business.  

It’s not unreasonable for business owners and managers to seek out the proper financial training in order to fully understand their financials, just like it is not unreasonable to seek out the proper training in order to fully understand a foreign language, even the simplest of phrases such as; “Hello, how are you?”

If you want to undersand your company’s financials fully, give us a call.  We can help.

Let us know what you think,

Take Care