Q: When my budget goes off the rails, should I try to get back on track or start over?
A: in a word: YES. Use this predicament to isolate what went wrong and learn from it so you can make a more realistic budget.
Start with a rigorous examination of the current budget against the actual results. Look at each month, as well as year-to-date totals. Take every line item and look at the differences, then examine what caused those differences. Were your projections off, or was performance better or worse than expected? Why?
Say sales revenue fell below budgeted levels (a common occurrence). Where did sales fall short? Were particular salespeople shy of their targets? Why? Do the same analysis by breaking down sales by product, territory, store, factory or whatever metrics you use in your projections.
Then analyse the cost of sales and the resulting gross margins on your products or services. Again, you should examine the budgets and results by the breakdowns that make sense for your business and point to actionable items.
Finally, do the same for all overhead expenses. Were your actual heating bills 20% higher than you budgeted for Winter? Did you over-use the air conditioner maybe in Summer?
Don’t skip analysis of cash flow. Were cash shortages driven by lower profits? Did collections slow down and inventories pile up?
Once you determine what happened and why, take another look at your original budget and determine which, if any, year-end targets are still attainable. Now you’re ready to build a new budget, along with an action plan to achieve it. For example, if your goal is to boost revenue and you decide to hire another team member, be sure to account for the time it takes to hire someone and for that person to ramp up, as well as the recruiting, training and additional compensation expenses that need to go into your new budget as a result.
Joe Worth – Magazine contributer – entrepreneur.com
Disclaimer: Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every reasonable care has been taken in distributing this article, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information contained within it. Any views expressed are those of the author(s) and do not represent the views of Australian Unity Personal Financial Services Ltd. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Taxation Information in this document should not be relied upon without seeking specialist advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459. This document produced in July 2019.