Cash is KING - Let's start with BUDGETS

Let's start looking to the future by looking at the past ......

So this week I started to execute my July plan. 

I have spent the preceding weeks formulating that plan. 

I read - a lot- and one of my go to books when thinking about changing cash flow and profitability is Mike Michalowicz’s Profit First.

Tip - if you are not much of a reader - sign up to Audible and get the audio book version - listen to it in your car or on a walk. More on this fabulous book in later blogs.

For me I also had to sit down and look at the year that was 2019/2020 and make some targets and plans.

I completed my data entry to 30/06 and ran a Profit and Loss and a Balance Sheet report.

I added a comparison column to compare previous financial years - side by side.

Then I grabbed a coffee and sat down and read the numbers. Yes ‘read’ the ‘numbers’.

I exported the reports to excel so I could add comments and notes. 

I looked at reasons why income or expenses had increased/decreased -

Below are just some of the reasons you might consider as well : 

• Seasonal issues eg weather
• Closure ie annual holidays
• Change in circumstances eg CoVid 19 lockdown 
• Increase/decrease in staff 
• Addition of new products.            To name a few ! 

I then added a column to set the budget for the Profit and Loss accounts - based on what had happened and what I predicted was possible - always checking the end result ie profit was where I wanted to be.

Setting budgets seems hard - it actually is quite easy - maintaining them is harder. 

The budget is the plan - it is the guide to see if certain expenses or income are exceeding the plan or NOT performing - so you have an opportunity to change or guide spending or ramp up revenue in the right places.  

No one has a crystal ball so don’t labour over this too long OR get  micro in analysis - just get a budget in.

Too many people just procrastinate on this way too much - by failing to prepare - you are preparing to fail! 

The very first budget I completed for my business was basic ( a little cringeworthy actually)  but now each year I enter into Xero a comprehensive budget that I religiously review each month. To my actual numbers. To turn the levers and ensure I get the most from my business and hard effort. 

Instead of putting 1 budget figure in and spreading it equally across all months - I also ensure I enter the expense relative to the month for complete accuracy - for example my accountant charges me annually so I have entered that expense in the month he usually charges rather than divide it by 12 and enter it monthly.

A little word about Balance Sheets - this report shows you where that profit or loss  is 

• Is in money in the bank accounts ?
• Spent on large equipment/vehicles?
• Spent paying off loans/liabilities ?
• Or drawn by you ?

The movement between the numbers in the balance sheet show you this. In Jerry MacGuire lingo "Show me the money!"

      It is at this point you may decide to refine how you are classifying your expenses and income.

A word of warning - a lot of accountants and bookkeepers have put thought into this Chart of accounts and use certain accounts for your Tax Returns so perhaps draft your changes and run it by them first ! They will be please to collaborate and advise on this - they LOVE it when you want to talk about your numbers with them!

This will enable you to run reports to compare the budget to the actual figures 

Once you have the budget on paper - time to enter it into Xero 

https://tv.xero.com/detail/video/5131036429001/using-the-budget-manager-in-xero

               That’s it - easy right ? Budget done !

Now to get onto the other cash flow changes I am making in my business in 2020/21 ...stay tuned 

I am currently collaborating with some colleagues on a Crash Course in Cash Flow  - more on that in the next few weeks 

.....so be sure to check back in to come along the journey with me no one wants to walk alone !