#5)     Create an annual budget!

Annual budgets serve many purposes, not the least of which is the knowledge a business owner or manager will gain in the process of creating one. More commonly, budgets are known for the benefits they bring in the annual planning process. It is all too common for owners and managers to fly by the seat of their pants and make decisions based on gut feeling. Now I’m not discounting the value of sound judgment based on years of experience, however to have a tool one can use to qualify a gut feeling or to offer the ability to change course midyear in a fiscally responsible manner is priceless. A budget can offer owners and managers a baseline from which they can keep expenses in line, reallocate funds and pay for it or reign in spending if income is not as robust as expected for example.

Tip: Creating a budget is much like creating benchmarks, use historical data, industry standards, the economic environment and company goals to set income and expense values. (See previous posts for information) Create an annual Income Statement by month for the previous year in Excel or a similar spreadsheet program. More often than not you can pull the statement from your accounting software and export it to a spreadsheet. Now you have the basis for next year’s budget and can begin to adjust values based on your knowledge of your company, your industry and the economy as a whole. Remember budgets are not static, revisit them every month and adjust where necessary, in this manner you will have the ability to make real time decisions based on your actual situation. One web site I found interesting washttp://www.inc.com/budgets. This site is valuable as it offers multiple scenarios and is not trying to sell you anything!  Happy Crunching!!!

Geoff Robertson, MBA, Entrepreneurial Advisor
Davis & Hodgdon Associates, CPA’s
July 2011

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