How To Budget
Much like diet and exercise, we all know the long-term benefits of being wise with our money, but few of us actually know how to budget and put financial planning into practice. Budgeting allows you to set sales targets and spending plans that will give you confidence in generating the funds necessary to operate your business now and down the road.
Budgeting allows you to set sales targets and spending plans that will give you confidence in generating the funds necessary to operate your business now and down the road.
OPERATING A BUSINESS WITHOUT A BUDGET IS LIKE SETTING A GOAL WITHOUT A TARGET.
Budget to actual
As part of the service options available at Pacific CPA, our trained professionals will work closely with you or your staff to generate quality budgets that will serve as a roadmap for spending priorities and cash management over the coming fiscal year. At the end of the year, we will compare budget estimates to actual figures. This budget to actual comparison report, also known as actual variance analysis, can serve as a measuring stick for how your company performed during the year relative to expectations.
Budgeting for lenders: Not only is budgeting beneficial for your own internal use, but it is also often valued by external lenders or investors. If your company is seeking financing, the ability to produce budgets and forecasts for the upcoming year is highly valuable and in many cases increases your chances of obtaining financing. Furthermore, if you are able to provide consistent evidence of your company’s ability to accurately meet or exceed forecasted projections, this can further increase discretionary lending opportunities.
Reporting on key performance indicators (KPIs) and key financial ratios
Key performance indicators are quantifiable measures used to evaluate the success of an organization and tend to vary significantly by industry and company. This is because one performance metric may be important to one company or industry over another. Budgets and forecasts are heavily employed in larger corporate environments but tend to be underutilized by small businesses. Our staff will collaborate with you to identify a set of KPIs that are of significant value to your business, core values, and industry. Once identified, we’ll track and input data to report on results. Your KPIs are another important tool that can be used to measure the success of your organization.
- EBITDA – Earnings before interest, tax, depreciation and amortization. Measures the company’s operating performance.
- New contracts signed per period
- Sales conversion
- Inventory turnover