Don’t skip todays podcast! I get it, budgeting and accounting are the type of words that typically equal brain freeze or mental check out.
Guess what? Businesses that don’t know how to budget fail. Leaders that don’t know how to budget fail. I know digging into excel spreadsheets and accounting software can be painful tasks but they’re so important to your success. So important, I’m sharing my personal budgeting spreadsheets with you and explaining how to get on top of your profit and loss right now!
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While you’re listening, download these budget forms and take a look at what I’m talking about. If you’ve got any questions or comments, please leave your feedback below!
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12 thoughts on “6 | Budget Correctly or Fail”
CRITICAL topic, Chris! Thanks for addreessing it and thanks for sharing your forms.
Budgeting the income statement (P&L) is important, but “cash is king”, so remember to budget CASH, too! The cash flow statement is probably the least understood, but MOST INFORMATIVE of the standard financial statements.
Thanks Chris, Talk about a God Send…. Hope this finds you and the family well..
Thanks brother! Glad you like it!
My Dad and I run a construction company together. I have run a department of the company for a couple of years now. I will be taking over the business at the end of June 2015. We do an individual P&L for each job. Right now we are taking a percentage of each job and saying that is going to overhead.
We have not been budgeting and I don’t know where to start. Some of the situation is that we are overbooked and understaffed at the moment. Also, we are trying to figure out how things will be different or the same with me in charge when the time comes. Any advice would be appreciated.
I spoke with you at the Masters Series almost exactly 1 year ago for about 30 minutes with your assistant. I was a mess. Remember me? ha!
Anyhow, you will be happy to hear that I took your first piece of very wise advise and came home and started interviewing bookkeepers. The last one I spoke with was exactly the one God had in mind for me to help me to get all this budgeting, P & L, Balance Sheets stuff together. We speak several times a week and review end on the month reports together. He lives by the same principles as us and that makes things great! I never knew how to read the reports My husband and I did business for 13 years and we never knew how. We were so busy working in the business that we never went as far to do all this stuff. I just don’t know how we made it as long as we did not doing this stuff. It is crutial. Thanks, Chris, for the very wise counsel you gave me. Delegating and outsourcing in this area was the answer to most problems we found ourselves in. It’s why I still continue to follow you to this day. Your experience and knowledge is so helpful to me and I appreciate all you do! btw, your spreadsheets are BEAUTIFUL!!!
Thank you, thank you, thank you! I’ve been trying to wrap my brain around the logistics of our business budget for months. I’ve got the accounting down, I know our numbers and I’m a pro at our home budget, but the business budget is a different bird. I’m going to play with these sample budgets and give it a go for November!
Forecasts provide multiple perspectives on a business.
1) Short Term Cash – Can we make payroll next month?
2) Long Term Cash – Can we pay for the new equipment in six months or can the company pay December bonuses?
3) Strategic Planning – Set financial goals and monitor progress toward the goals. Without set financial goals, owners get busy with daily work and forget to think about next quarter and next year.
4) A measurable component of SMART goals.
I prefer the term forecast over budget. Forecasts are dynamic and are updated as new information is learned. Budgets are traditionally static and are not changed. Budget also has a “use or or lose it” connotation.
The below link points to an example forecast we created for law firms. Once the income statement forecasts are stable, begin to forecast cash flow. In the example, the business has positive net income each month, but has negative cash flow for five months and cash is negative for most of the year.
Thank you Chris. I was just banging my head against the wall the morning just before i listened to your podcast. I was trying to wrap my head around how to keep budget and live expense information in the same format. My head gets it, but have trouble executing what i’m thinking. These examples are a HUGE help! Thankyou so much. … now off to changing my financial world.. 🙂
Chris, I know you guys talk about “closing out the books” on a monthly basis. Is that just a matter of reconciling your accounting software with the bank and then with the budget?
1) Set passwords or set system to prevent changes in completed accounting period. When January is closed, the financials should never, ever change.
2) Reconcile every value on the balance sheet. Tie every balance sheet value back to supporting numbers. The balance sheet is where every accounting error lives until somebody comes through and cleans house.
2.1) Confirm everything the company owns or owes is listed on the balance sheet. The balance sheet should tell a complete story of the last day of the period. We typically see where loans or extra credit cards are not included on the balance sheet.
2.2) Review all accounts receivable and accounts payable reports. Make corrections and write off uncollectable items.
3) Review every income statement transaction for accuracy. In QuickBooks, review the detailed income statement for each class. Once the accounting system is in order, this step is not as bad as it sounds.
4) Review statement of cash flows for issues.
Once the above items are done, update monthly management reports and rolling forecasts.
Implementing and completing a monthly close is one of the key items we provide for our customers. By completing the close, the accounting ambiguity is removed and the numbers stop moving. Most importantly, management begins to trust the numbers. The monthly financial meeting conversation stops being about financial statement confusion and moves to running the company.
I’ve attached another forecast example below.
The cash flow forecast depicted on page 4 is pure gold for most businesses. Net income does not equal cash.