30 June has been and gone and so has another financial year. If you haven’t already, now is the time to be preparing a financial forecast for the year. For many business owners, the words ‘financial forecast’ or ‘budget’ make you feel uneasy. Similar to your personal finances, you probably associate the word budget with restriction. The cold hard data of numbers can be intimidating and can even bring on a painful reminder that you haven’t looked at last year’s forecast since…last year.
Or maybe you are further behind than you anticipated in last year’s forecast. Which leads to feelings of guilt and some pretty confronting questions:
How did this happen?
Why didn’t we look at this earlier?
I thought we were more profitable than that?
These sorts of questions will only occur when forecasting is avoided or ignored during the year. Planning and forecasting shouldn’t be something you dread, it should be exciting and enlightening.
Being aware of the right numbers will actually make you feel freer because there are no nasty cash flow surprises around the corner. Think of your financial forecast as your business armour.
So what are our 3 most recommended weapons to keep you in control of your business this financial year?
The first thing I’m going to encourage you to look at is your profit. No, not your profit from last year… your ideal profit for the next financial year. That’s right, we are going to decide how much net profit you want to generate and then reverse engineer your direct costs and expenses from that number.
Having this profit figure in mind will help you shape other parts of your business so you know exactly how your costs throughout the year will impact your profit. From when to hire your next employee, to how much you can spend on marketing, it keeps everything transparent.
Too many business owners look at profit as the last thing that spits out of the spreadsheet. It’s the final number you arrive at after you have paid everyone else to keep the lights on and doors open. Very often the profit figure is a surprise to business owners at the end of the financial year, a number that bears no relation to how they think their business is going.
We need to eliminate the habit of seeing our accountant at the end of the financial year and hoping for the best. Profit is planned, not hoped for. Deciding on your ideal net profit first ensures you have a benchmark against any future decision.
We are hosting a live webinar on Thursday 2nd August with more detail around this topic, follow our Facebook page for updates on the webinar.
Trackable micro goals
There’s no use having all your numbers clearly outlined for the year if you and your team can’t integrate them into your day to day work.
You’d be surprised how many business owners have a revenue target for the financial year but haven’t converted that figure into a tangible number.
It’s all well and good to throw a % increase on your revenue figure, but it means absolutely nothing unless you have a trackable number that you can continuously measure against. Depending on your business we recommend breaking this down by either month or week. How many new clients do you need to get to achieve this? Who is responsible for that growth? How will this be executed? And do you have the capacity to maintain high standards when you deliver it?
10% growth in a $4m business is $400,000 in new sales.
That’s $33,333 per month.
Nearly $7,700 per week.
The bottom line is, someone needs to be generating new sales of $7,700 per week, every week, starting this week! Miss a week and it becomes $15k the next week.
Keep yourself accountable
A forecast budget needs to be a living, breathing document. It shouldn’t be signed off at the start of the year then tucked away in your bottom drawer or saved ‘somewhere’ on your computer.
When forecasting is done right, it can inspire you by letting you see what’s possible. It shows you the right adjustments or the hard decisions.
Book in a regular time (daily or weekly) to ‘check in’ as a team and see how you are tracking.
Here at Liston Newton Advisory, we have a daily 10 minute run through of each team member’s priorities followed by our budget tracking. Having a regular ‘check in’ like this will allow you to identify quickly if you need to shift focus in your business to stay on track with your numbers.
Think of it this way...
There are two soccer teams playing in the World Cup, with identical players, and identical stats. Both teams have a badly injured defender. Team A pushes one of their midfielders back into defence to help lighten the load on the injured defender. Team B.....Team B pretends their injured player isn’t too bad and doesn’t take make changes to the play. Who will win?
It’s the same in business, admitting our weak spots is something that will make us a stronger team and increase our chance of winning.
If you have any questions on how you can set yourself up for a successful financial year, please get in touch with myself or the team.