Reporting on past and current performance is almost worthless if you don’t validate the results – and immediately identify if achievements are acceptable or not?
Validating performance will increase focus and results
Creating a business budget is one of the most important activities you can do to help you small business succeed. Together with a clear business plan your budget will help you validate your performance throughout the year to determine if you are on track or not.
I once heard the expression: “…where performance is measured, performance will increase.” To this expression I would like to add – “…where performance is measured and validated. A result all by itself is just a number until it is measured against an expectation or a budget. In this case the budget is our set of planned expectations and will help us to identify and focus on the most important activities – help us to reach our business goals and determine if we are performing to expectations or not.
What is a budget?
A budget is basically your estimated plan for both revenue and expenses for the financial year. When a budget is decided, distributed and adopted by an organization everyone will know what performance and results are expected of them and how to use revenue and resources to achieve joined or individual business goals.
Too often complicated and time-consuming budgets are created and never looked at again. For a small business an overall budget will be sufficient, and will help keep the company and employees focused and secured that performance is continuously on track and aligned with the expectation for the year’s results.
Revenue can come from sales, accounts receivable, interest and other sources. Expenses are what you pay out for materials, rent, utilities, payroll, marketing and other fixed and variable costs.
What do you need a budget for?
Understanding Revenue. Any business striving for growth should have an annual revenue budget. Understanding your revenue streams and customers purchase patterns will help you be more focused on what services and products you should sell to whom, where and when! With monthly distributed KPI’s you will quickly be able to identify if and where your performance does not meet the planned expectations and seasonal fluctuations, and you will be able to either monitor the development or take immediate actions.
Cost optimizations. Keeping track of your expenses and how they develop is one of the most crucial activities for a small business. An expense budget will help you monitor and make sure expenses don’t accelerate without you knowing immediately. If there are any deviations to your planned expenses you should automatically be notified so that you can either approve the spending or take necessary actions to manage the expenses.
Profit. Knowing if your small business is profitable and developing as expected, is important. Understanding which customers, services and products that are generating your profit, will also assist you in identifying where you should focus your time and resources to reach your budget and maybe even increase and over perform. Again if your expectation for seasonal profitability fluctuates from the planned, you should be notified immediately so that you can take necessary actions to get back on track.
Cash flow management. To secure a positive cash flow, business owners and managers can carefully track revenue and expenses and compare it with the budget. This will allow you to assess cash flow – for example, are you collecting money from customers long after you have paid for the goods they have purchased? Once you identify cash flow gaps, when revenue is smaller than expenses, you can take necessary steps to close them.
Communicating to external Partners. Investors, banks and other partners want to examine and approve your budget before they agree to give you a loan. Automated reporting and validating your performance against a budget will give your partners a chance to keep track of your progress and easily determine if achieved results are as planned and agreed.
Budgeting can be automated if you keep it simple!
Many small business owners find the budgeting process complicated and time-consuming. There is no need to list every expense in great detail—accounting for different categories such as supplies and utilities should be sufficient, rather than breaking it down into paper clips, light bulbs and other specific items.
MoreReporting has solved this problem, by simplifying the process of setting up a budget and automatically integrate the budget into the reporting on the daily operations, and alert the business owners and managers when performance is outside the budget limits or deviates from the customers’ usual level of performance.
A budget can automatically be generated and distributed based on previous years registered progress and results. You can quickly add changes for the coming period by adding a percentage increase/decrease or manually update if necessary.
This high-end budget solution will cover the most significant budget information needed to monitor, analyze and report back on your business performance and progress.
A number of experts suggest that a monthly budget is most useful for staying on track.
Even though a budget is a useful tool for remaining disciplined, it is not written in stone. Your budget is a great validation tool to determine if your continuous performance is meeting the company’s expectations and goals. If you see that changes need to be made, do so.
Creating a budget in the traditional way is both complex and very time consuming. Using an intelligent tool like MoreReporting to auto-generate an overall budget is easy and very valuable. Quickly you will experience for your self how this simple automated planning tool will take much of the stressful guesswork out of running a business and makes operations function more smoothly.
So what are you waiting for? Integrate your cloud applications with MoreReporting today and see how you can make your business even more profitable beginning now!
We have a 30 free trial including all functionalities and integrations for all your employees. After the trial period is over you can continue on our Freemium or purchase access to our Professional Edition that includes budget for as low as $49 a month for the first user and only $10/month per additional user.