We recently discussed updating your business plan for 2020. Reviewing your finances is obviously a big part of that — big enough that we thought even more attention is needed for your budget. Nearly everything you do in your business can be bounced off of your cash budget. It’s one tool that will keep you focused on the activities that truly contribute to your success.
So, how do you prepare your budget for 2020? Here’s how:
Project Your Income
Using your updated business plan and your goals for 2020, identify a realistic revenue target for the year. For the cash budget, figure out how much of this will be collected in 2020, as opposed to pushing out into the following year.
Calculate your expected Cost of Goods and Labor
When you review your numbers from 2019, you’ll identify your Gross Profit Margin and the goods and labor components. These will be a percentage of gross revenue. Using the projected changes for the new year, add these into your cash budget. This will ultimate give you a cash number in gross profits that you’ll need to cover your expenses.
Update your Expenses
People tend to shy away from confrontation, which leads business owners to leave money on the table due to a lack of negotiating agreements with everybody you pay your cash out to. From utilities to office supplies to rent, you will want to re-evaluate each one of these for your updated budget. This also applies to suppliers and vendors for your cost of goods.
What’s new for your business in 2020?
Your projections and goals for 2019 likely include changes to products, marketing, and your team. Account for these in your cash budget. You also need to consider one-time purchases and expenses that will pop up in 2019 — think trade shows, capital acquisitions, travel, bonuses, etc.
Once you have your draft budget prepared, run it by key people. If your organization is large enough, you’ll want each department head to create their own budget. But for small businesses, you’ll want to get feedback and input from your key team members. The last thing you want to do is release a new budget and end up setting people up for failure. Get it out there and vetted by those it affects.
Your budget is a tool to help you make spending decisions. Having a well-prepared budget in place for 2019 will help you and your team stay focused on your business goals. Preparing your budget is a positive exercise designed to support your business goals. It’s not about pinching pennies and saddling your team. Take the time to do a realistic projection of your revenues, find opportunities to reduce cost of goods, labor and expenses, and lay out a plan that everybody can get behind. When you do that, you’ll be creating a plan and the financial backing to support your company’s vision.
Don’t go it alone. Get help with your budget. Schedule a free consultation with ASCEND Business Advisory today!