Budgeting and business planning demand a large input of time and energy but the rewards make the investment well worth it. Business owners and managers budget and prepare budgeted financial statements for three main reasons: modeling, planning, and control.
Outline where you want to take the business
Business owners should make detailed analyses of financial information to determine how to improve the financial performance and condition of their business.
A financial model is like a road map that clearly marks the pathways to profit, cash flow, and financial condition. It is an outline of where you want to take the business and what you need to achieve to get there.
Chart the course of how you are going to get there
Budgeting forces you to create a definite and detailed financial plan for the coming year. To construct a budget, you need to establish financial objectives for the coming year and identify the underlying business drivers. Budgeted financial statements provide clear destination points — the financial chart for the business. Budgets are a form of planning that pushes owners to answer the question “How are we going to get there from here?”
Keep track of your route against your planned direction
Budgets also serve a management-control function. Management control means achieving the financial goals and objectives of the business, which requires comparing actual performance against benchmarks and holding individuals responsible for keeping the business on schedule in reaching its financial objectives. Budgeting is not about accounting. It’s about being accountable.
The power of the budget is in the process of preparing it, and then the budget itself is the tool to hold you accountable to the measurable indicators you have chosen.
MBC can be an added layer of accountability. We work with several clients where, on a monthly or quarterly basis, we act as a sounding board or independent party to ask about the key drivers and the results.
We look forward to helping you chart your course, helping you get a clear direction, and then keeping you and your business on course.
Contact us today on 6362 0988.