Is doing a budget a waste of time?
A client once said to me, “Doing a stupid budget is a waste of time! How can I predict the future?!”
It’s a fair point and he’s correct. We can’t predict the future. And I’ve actually never seen a budget come true 100%.
So why even bother doing one? There are 3 main reasons:
It helps us plan what resources we need for a given level of sales revenue,
Many business costs are known in advance, so a budget lets us set a target to cover costs and shoot for a profit,
Having a target focuses our attention and gives us something to aim for.
But in uncertain times, there’s no doubt, a budget is tricky to put together.
So, we’ve found it’s best to prepare 3 scenario’s; Best Case, Worst Case and Most Likely.
Use last years figures as the starting point and work you way down the list of expenses.
Start with operating expenses first, because when you think about it, many of these are known in advance (such as rent, lease or finance payments, full time wages)
Then work on the variable costs. Those costs that change depending on your sales revenue.
If you have Cost of Goods Sold, hold this % the same as last year, at least for the first draft.
Contact us if you’d like the free PDF which covers these 3 scenario’s.
Click on the Contact Us button if you’d like a copy of the XL version, which you can customise to your own situation.
Let me know if you need a hand
Peter