Budgeting For 2016 Begins NOW!
Use Ken’s Spreadsheet to prepare for next Year
Believe it or not, 2015 is over. I know there are a couple months left on the calendar, but if you wait until next year to begin your financial plans for 2016, you won’t leave enough time to get the year started correctly. Changes in your budget need to be created in advance of actual results to maximize income and control expenses. Download this free budget spreadsheet to help you prepare for next year.
Start by taking the actual results of 2015 for sales and expenses and estimate November and December based on the results of the last 90 days. If your sales have been up 8% in August, September and October, then project that trend to continue in November and December.
Do the same for your expenses- look at the first 10 months of the year and fill in projected expenses based on those results. In most cases, expenses are much easier to project than income. Many expenses are fixed, meaning they are the same every month, or they are a consistent percentage of sales. Credit card processing fees are one example of this type of variable expense.
Now that you have 2015 completed by month, you can make your budget for 2016. Fill In sales using 2015 history, but adjust your projections when 2015 includes sales you may not see again in 2016. Sometimes we get large sales from customers which will distort our projections if they are not likely to occur again. When forecasting your cost of materials, take the total you spent on materials for 2015 and divide that by 2015’s totals sales. Now use that percentage in each month of your 2016 projections.
Next, fill in your projections for all your expenses. If you know an expense will go up or down in 2016, make those changes beginning in the month when it will change. After you fill in all your expenses, the attached form will subtract them from your gross margin dollars automatically, showing you the cash flow you are budgeting each month. This is the real reason for doing this- the ability to see if you are projecting a positive or negative cash flow. If you see that your expenses will exceed your income, you have time to create plans to reduce spending.
As 2016 progresses, fill in the actual results of each month. This will allow you to see if your plan is accurate enough to rely upon. If actual results are not meeting your projections, you can react immediately and reduce the consequences of a sales loss or increased expenses. Finding the time to create a budget and record actual results is essential to maximizing profit and creating a positive cash flow.
