By Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services
Hopefully you all have enjoyed a healthy and happy holiday season, and are ready to attack the challenges of the New Year with gusto. If you’re a business owner or manager, you’re busy looking over your numbers for how well the company did in 2015. Now is also the time to set your goals for 2016.
Just as many individuals form New Year’s resolutions to improve something about their personal lives, businesses need a plan in order to improve and reach their goals. For a business this plan usually takes the form of a budget.
Large companies are usually required to do detailed advance planning, but it often doesn’t happen for smaller businesses. Don’t make the mistake of becoming so engrossed in the daily operation of the enterprise that you fail to think further ahead.
The budgeting process is a key way to jump-start your strategic thinking.
At its most basic level, a budget is a simple comparison of the upcoming year to the prior year. If everything goes as planned, then the results should be similar. If you begin with the prior year as the starting point, you can then modify its actual results for things you know will change in the coming year.
One important benefit of budgeting is the potential to predict cash flow patterns for the coming year. By building a balance sheet with a budgeted income statement, a business owner can estimate how cash may be generated and used over the course of the year. This exercise can be very helpful in planning for capital expenditure needs and debt service obligations that should be part of the budget but do not manifest themselves in an income statement. It will also assist in maintaining compliance with bank debt loan covenants or identifying metrics that may require modification.
As you’re taking a hard look at the numbers, this can help open other areas of the operation to examination, such as human resources. If you don’t already have a system in place for performance evaluations, implement one as soon as possible. This can help you ascertain if you have the right people in the right positions.
This should be a collaborative process of constructive criticism, highlighting each employee’s strengths and needed areas of improvement. Set goals for them for 2016 and, wherever possible, tie that to critical metrics in your budget. Help them understand how their role fits into the overall team’s success.
Talk to your most important vendors and clients and ask them to give you feedback on how well you’re doing, where the business relationship needs development and any untouched opportunities. This could help you improve aspects of the operation that you didn’t know were lagging, or open up new possibilities for revenue and growth.
While going through the internal issues, don’t neglect to take a macro view as well. Compare your business’ performance to that of competitors, and against industry averages in the state, region and even nationally. This can help you spot weak areas that aren’t immediately apparent before they become major headaches.
Start 2016 with renewed vigor and dedication to the planning and budgeting process, and you’ll reap the benefits all year long.
If you need help getting your budgeting process into the next gear, please contact Mike Bedel at (317) 613-7852 or email [email protected].