How was the 1st Month of the Financial Year?
July is a good test of how realistic your 2014 budget is. Do you have your July numbers yet? A first cut P&L and comparison to budget can be done by the 3rd working day.
How do the key numbers – Revenue, COGS, GP, Employment Costs, etc stack up? If you’re someway short or over your budget why is that? If you’ve greatly exceeded or under-achieved against your budget there are 3 likely reasons:-
1 – you’ve had a great month! Cool, keep doing whatever you’re doing.
2 – you’ve had a terrible month. Review why urgently and take steps to address it.
3 – your budget is unrealistic. If so I’d suggest revising it now. Unrealistic budgets or targets (particularly over-optimistic ones) call kill enthusiasm. No-one likes ‘losing’ or chasing unrealistic goals. You might have a ‘dream’ or ‘stretch’ budget but the one you share with your team should be based on reality. It should be hard to achieve and be based on ‘most’ things going right but revenue growth can only occurs if it the target is underpinned by actual activities that if executed correctly will get a result, not on a 50% growth dream you may have had.
This early into the financial year you’d be best revising your budget if it’s already clearly unrealistic. You’re allowed to, and there are no rules against it. In fact your Accountant will probably be rapt you have a budget at all, and are actually working with it rather than filing it. I create a new forecast every quarter and report against that. Having a growing business can mean things change quickly so why not ensure your targets (budget) are adjusted accordingly.
Here’s another way to think about budgeting / forecasting regularly – it removes the element of surprise. Business owners, banks, accountants, everyone really don’t like big surprises. In business even pleasant surprises can reflect poor budgeting. If you really look closely at the budget and take into account prior years, current trading conditions, sales initiatives etc you can really forecast very accurately. Consistently achieving results that don’t wildy fluctuate from the expected (budget) breeds confidence. Confidence for you and your team.
Truly understanding what’s driving your results for July would require further analysis. That depends on your industry. If you’re a job-based business you’ll looking closely at profitability by job, labour costs, unbilled jobs (WIP) and more. Wholesalers would be looking at sales & margin by product category / customer / sales rep to identify non-performing areas. I’ll discuss that in more detail next week.
Hope it’s a good one. Happy trading