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Budgeting & Planning Tips
Add revenue streams wisely.
Just because a new revenue stream increases sales income doesn't necessarily mean that it will add to the bottom line. Spend the time beforehand to determine the direct and indirect costs associated with the new revenue stream. Is there broad customer demand? Can current staffing levels meet projected demand? Will new stream take away from current streams? Above all, be careful and have a written plan.
Be conservative when setting your budget; be liberal when describing assumptions.
Don't set yourself up for failure and make certain that assumptions for each account represented in the numeric budget are detailed in an accompanying narrative. And use considerable due diligence while honing in on reasonable budget figures and always provide historical benchmarks for comparison analysis.
Be kind to your banker.
Your banker is the key to your success - daily operations and expansion opportunities. Should you find a good relationship, then fulfill requests, comply with loan covenants and refer when appropriate. While your attorney and accountant assist with implementation and reporting, your banker actually makes it all go.
Do not update beginning of the year budgets.
Often managers get the urge to update budgets as circumstances change during the course of the year. But a static annual budget is an important projection tool that indicates obvious explanations of what you thought would occur with what actually did occur. And provides evidence as to which techniques and assumptions should be incorporated in future budgeting projects.
Don't pay out all your cash at year-end.
It's such an easy trap - your Company has considerable cash coupled with some taxable income so you pay out significant bonuses to reduce the profits. Well, don't blow out all your cash just to reduce profits. You'll likely hamstring January cash flow and may do more harm than good. Sometimes paying taxes isn't such a bad idea.
Expand with a plan.
Expansion requires risk, luck, patience and sacrifice. Above all, understand that you don't want to grow too much too fast and thus, allow increases to space, staff and systems expenditures to occur without a corresponding increase in revenues. Therefore, you must have a plan in place before implementation.
Joint Ventures.
Keep these arrangements simple. Have both parties contribute cash. And don't contribute equipment. Sell it to the entity itself and have the entity obtain debt financing if necessary. If you want the accounting to be straightforward, then so should the JV arrangement.
Read the fine print on all projections.
More times than not, long-term projections often miss the mark. And fail to account for the unexpected…good or bad. Yes, they provide a practical benchmark or reasonable basis for decision-making. But look at figures greater than one year out skeptically.
Share your success. Spread the pain.
All too often the rewards of success are horded by few and sacrifice arising from failure is imposed on selected individuals or groups. Like it or not, every company is built on the premise of teamwork. So share success and spread the pain.
Startup has no ideal timeframe.
There is no ideal time to start your business. Please make certain you've examined your "4 P's" - Product, Price, Place and Promotion - before you entertain the enterprise setup process. Missteps can be made at any time during a business's lifecycle; startup should be relatively pain free regardless of timing if you have a plan.
The 3 S's
Staff, Space, Systems. These three critical components represent the majority of your operating costs and failure to appropriately monitor them may lead to the dissolution of your business. Therefore, expand prudently and always have a written plan to ensure the future prosperity and goodwill of your Company.
The numbers behind charts and graphs never lie.
Bar graphs and pie charts make good snapshots. However, don't be fooled by what the picture painted may be saying about your company's fortunes. Always digest the numbers behind the charts and graphs presented. This ancillary analysis completes the picture.
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