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Budget Tips Sheet Congratulations on taking your first step on the road to better Profit and Cash Flow Firstly let s reiterate what are the benefits to your business of a Budget Helps you to get in control in your business and sleep easier at night Acts as a roadmap when going on a journey you would not just jump in your car and head off without a plan A budget is like a Road Map or GPS Reveals waste and allows you to fix it quickly Aligns priorities so everyone in the business understands what they are Reduces stress for staff and owners less need to fend off suppliers Builds new habits teaches people there are limits to spending Develops sense of ownership in your team incentive to stick within budget Improves productivity through awareness staff can see the impact of overspending including labour time Acts to accelerate business goals Banks want them if you want to borrow funds you will need to provide a Budget and Cash Flow Forecast to lenders 1 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Budget Tips Sheet Congratulations on taking your first step on the road to better Profit and Cash Flow Firstly let s reiterate what are the benefits to your business of a Budget Helps you to get in control in your business and sleep easier at night Acts as a roadmap when going on a journey you would not just jump in your car and head off without a plan A budget is like a Road Map or GPS Reveals waste and allows you to fix it quickly Aligns priorities so everyone in the business understands what they are Reduces stress for staff and owners less need to fend off suppliers Builds new habits teaches people there are limits to spending Develops sense of ownership in your team incentive to stick within budget Improves productivity through awareness staff can see the impact of overspending including labour time Acts to accelerate business goals Banks want them if you want to borrow funds you will need to provide a Budget and Cash Flow Forecast to lenders 1 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Tips t o Hel p You Creat e a Simpl e Budget Point s t o Consider Complexity of your budget should be based on the size of business for larger business have a more detailed one including the following plans o Sales o Marketing o Personnel o Manufacturing o Overheads For example for a Sales and Marketing Plan how many customers do you expect and how much are you going to sell to them link this to your Profit and Loss Budget Your Budget should not be static you should be able to it use all the time in your business and update when necessary Enter your budget into your accounting system so you can do a regular Actual versus Budget report to ensure you stay on track 2 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Budget ing Your Sal es Split sales budget by salespeople regions products services Split cash sales and sales made on credit Look at recent history to see what you did last year and factor in growth or decline as appropriate Take into account seasonality or growth factors Set realistic expectations don t budget to double sales unless you are going to do something different Use Break even analysis to decide on sales targets Include Interest and other income Budget ing Your Fixed and Variabl e Cost s Separate fixed and variable costs Fixed costs are those that you incur all the time e g rent admin wages telephone etc Variable costs are those incurred in making a sale e g a product and associated costs like freight inwards packaging etc If you re selling a service it s labour and materials on the job Categorise expenses e g personnel occupancy office expenses so you can see trends See CFO On Call template for a list of overheads or look at your last year s Profit and Loss Statement as a guide Check for adequacy will expenses budgeted be enough to generate sales Budget for people and travel costs to achieve sales link operations plans with Profit and Loss budget Factor in changes e g when rent goes up Allow for contingencies allow a buffer just in case something unforeseen happens Cut fat not muscle from costs overheads e g don t stop advertising or marketing that is bringing in leads or terminate good staff but take opportunity to eliminate spending that won t have an impact on ability to grow sales Break even sales is the amount of sales you need to make to avoid a loss i e to achieve a 0 profit or loss result This is impacted by fixed and variable costs When you ve calculated variable costs per product or job you then calculate gross margin For example if a product costs 40 including all costs associated with getting the product ready for sale and you re selling it for 100 gross margin is 60 3 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Now you need to know fixed costs Let s say they are 30 000 per month To work out break even sales take fixed costs of 30 000 divided by gross margin of 60 which gives a figure of 50 000 This is your monthly break even total sales If your average product sale is 100 divide the total sales break even figure of 50 000 by your average sale of 100 to come up with a figure of 500 units to breakeven In simple language this means you have to sell 500 units per month at 100 to break even Now you know your break even use this as a basis for setting targets to achieve your desired profit For example with every additional unit you sell above the break even volume of 500 units you will make 60 profit which is the gross margin per unit of sale Therefore if you target to make 6000 profit you will need to sell an additional 100 units To get hel p wit h anyt hing you have read t oday pl ease cal l us t o arrange a meet ing wit h your l ocal expert on 1300 362 436 Aust or 0800 180 400 NZ or cont act us t hrough our websit e www CFOonCal l com au Your first meeting will be a simple free consultation and we can show you our Break even Calculator which you can keep to use anytime 4 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au