As the year winds down, business owners have a lot to think about. One item that you should keep top of mind is next year’s budget. A well-conceived budget can go a long way toward keeping expenses in line and cash flow strong. The question is: Where to begin? Well, to answer this question, we don’t have just one suggestion — we have three:
1. Investigate your income statement – A good place to start on next year’s budget is with the numbers you put on paper for last year, as well as your year-to-date results. In your income statement, you’ll see information on sales, margins, operating expenses, and profits or losses.
One specific factor to consider is volume. If sales have slipped noticeably in the preceding year, your profits may be markedly down and regaining that volume should likely play a starring role in your 2017 budget.
2. Check your cash flow statement – Look at where cash is coming from in terms of daily operations, as well as external financing and investment sources. The statement will also tell you where cash is going, as you finance business activities and investments.
Even profitable companies can struggle if their cash flow is weak. Where do they go wrong? Under- or unbudgeted asset purchases can have a major negative budget impact. Another culprit is one or two departments regularly going over budget.
3. Peruse your balance sheet – Here you’ll find your company’s assets, liabilities and owner’s equity within the given period. Your balance sheet should give you a good general impression of where your company stands financially.
Take a close look at how your liabilities compare with assets. If your debts are mounting, a good objective for 2017 might be cutting discretionary expenses (such as bonuses or travel costs) or developing a sound refinancing plan.
That’s right — to get started on next year’s budget, simply pull out your most recent set of financial statements, roll up your sleeves and get to work. But you don’t have to do it alone. Alerding CPA Group can help you understand where your business stands as of today and what next year’s budget should look like.
You might also consider creating a rolling forecast. They have gained in popularity due to their ability to adapt to changing circumstances and show an updated picture of the future with only a few clicks of the mouse. Read this blog to find out more.