Whenever I enter a new client, I look first and foremost for a business plan. If I am lucky, I sometimes find that the client has an accountant who has prepared a profit and loss statement. Of course, in most small businesses, the profit and loss statements are prepared by an outside accounting firm and usually don’t go to the client until a month or so after the close. Rarely do I find that a company has prepared a budget (a financial plan). To me, that’s incredible and a little crazy. BAS Agent in Australia
It’s incredible because if you start a small business without a financial plan (budget), you have no idea how much it will cost you to run the business. Without a budget, you have no control over your costs and expenses, so you may not make a profit. Without a budget, you have no benchmark against which to compare your profit and loss statement to determine if you are on track to succeed, fail, or just survive.
Without a financial plan to compare against, you have no idea where on your income statement you should be making adjustments to ensure a profit and your business expectations.
Running a business without a financial plan is almost like flying in the dark. Ask yourself where a pilot would land without a flight plan? This image can also be applied to an entrepreneur running a small business without a budget. Pretty crazy, don’t you think? Absolutely insane! And yet, I see this every day when I visit small business owners who are struggling. And even more incredible to me is that most accountants and auditors who prepare these profit and loss statements for the business owner never bother to prepare a budget for their client so that the profit and loss statements make sense.
The other day I was sitting with a new Internet entrepreneur and his marketing manager. They had already spent some money developing a search engine for their business and were in the process of planning various promotional efforts for their website, as well as the possibility of hiring sales staff. When I asked them about a financial plan, they replied that it was too early to think about it. But they were already spending more money than they had originally budgeted to start their new business. After a few conversations, I finally persuaded them to put together a financial plan.
It took several attempts, but eventually we were able to get them to step back from their unrealistic ideas. And visualize where they were likely to end up at the end of the year now that they had a roadmap to follow. It was amazing for them to see how much they really knew. About the path they wanted to take after thinking about it. It gave them a real reality check and boosted their confidence. Because they now had a plan to follow instead of just wetting their pants. Accounting and Bookkeeping Services Melbourne
Creating a budget or financial plan is not atomic science. You just have to stop and think about what you need to have ready in your business and how much it will cost. Most costs and expenses are things you can control. The unknown is how much revenue you will make and when. This is where you really need to be conservative because you have no control over when the customer will buy. The best you can do is grab his attention; create the need and interest through your marketing and sales efforts. Of course, you can better design your marketing program by studying the market and seeing what the customer is buying.
In short, to be successful in business, you must be profitable because profits. Bring in the money you need to maintain and grow your business. With a profit plan (budget), you are in control to make the profit you are aiming for. All this will eliminate nightmares and allow you to better enjoy your business and have pleasant dreams.