Road Map to Business Profit- Quick Tips for Preparing a Budget
If you don’t know where you are going, you might end up somewhere else  â€â€Yogi Berra
There may not be another quote that more eloquently brings to mind the importance of planning or budgeting in business. Frequently in our work with closely held companies we encounter newly hatched entities with little or no thought to how much money they expect to make and if they do have an idea of what they want to make, have given no thought to how much in sales it takes to cover costs, overhead AND the expected profit!
We understand how tough it can be to sit down and write a budget, really we do, but creating a budget is probably the most important task there is for a new business. After all, you don’t want to end up “somewhere else” right?
Person CPA Group uses a method to simplify the budget process so that anyone can sketch out a plan for their company in less than an hour. Keep in mind this is not the detailed lengthy document you might create if you were the CFO of Exxon Mobil or Microsoft. This is a real world, realistic look at selected items that are important and easily monitored. Our format is designed to give you 2 or 3 key items to monitor closely and save the rest for the day when your business grows big enough to pay a Chief Financial Officer to sweat the details for you.
The following is the basic layout Person CPA Group uses to design a basic budget. It follows the format of an income tax return and is different from other formats used to analyze financial data. This is a simplified format that works for small business.
Budget Format Illustration
| Account | ||
| Step One – Calculate Gross Profit Margin | ||
| Sales | $ 250 | |
| Less Cost of Goods | $Â 63 | |
| Gross Profit | $187 | |
| Step 2 – List all overhead expenses and add the profit you would like | ||
| Less Overhead Expenses: | ||
| Advertising | $25 | |
| Office Salaries | $ 100 | |
| ** Owner Salary | $500 | |
| All Other Expenses | $25 | |
| Total Overhead | Â $650 | |
| Step 3-Divide total overhead expense and profit by gross profit margin to find breakeven | ||
| Gross Profit Margin | Â 75% | |
| Â Break-Even Sales | Â $869 | |
| (Overhead Costs divided by profit margin) | ||
Notice the format allows this business owner to see a small number of items. Sales, Cost of Goods Sold, his two largest overhead expenses(Advertising and Salaries), then everything else is combined into one category. This simplified format is a good starting point. At the end of the first month the owner should check his numbers and review any differences between the results he achieved and results he expected to achieve.
For more help in designing or analyzing a budget for your business, please contact us karen@personhuffcpa.com or call 504.780.8299