When it comes to next year’s budget, you don’t have to reinvent the wheel. But you should do more than simply recycle this year’s version. Your financial statements can help. They offer three places to start looking for the right numbers:
1. Your income statement. Here you’ll see information on sales, margins, operating expenses, and profits or losses. If sales have faltered this year, consider allocating dollars to regain the volume that will bring profits back up.
2. Your cash flow statement. This shows you where cash is coming from and where it’s going. Under- or unbudgeted asset purchases can undermine a budget, as can having just one or two departments rack up excessive expenses. If either of these problems adversely affected your current budget, reinforce your company’s policies regarding purchases and departmental expenses.
3. Your balance sheet. Your company’s assets, liabilities and owner’s equity within the given period are expressed here. Look closely at how liabilities compare with assets. If debts are mounting, cutting discretionary expenses (such as bonuses or travel costs) may be a good objective for next year.
A sound budget can act as a road map to success and an early-warning system for when things are going awry. Please let us know how we can help with the planning and execution of yours.