Wendy Robinson gave a presentation on why small business owners hate numbers but should learn to love them through budgeting and forecasting. She explained that budgeting sets financial goals for the year while forecasting predicts finances based on current indicators. Robinson provided tips for creating budgets and forecasts, including using historical data to calculate daily rates and annualize periods. She emphasized starting simply and adjusting budgets as the business changes over time. Comparing actuals to budgets and forecasts helps evaluate business performance and make financial decisions.
Why Small Business Owners Hate the Numbers and How They Can Learn to Love Them!
1. American Business Women’s Association
June 12, 2010
Presented by:Presented by:
Wendy RobinsonWendy Robinson
Budgeting and Forecasting for
the
Non-Accountant
3. Why Small Business Owners
Hate the Numbers and How
They Can Learn to Love
Them!
American Business Women’s Association
June 12, 2010
Presented by:Presented by:
Wendy Robinson, The Queen of
Busting the Bookkeeping Blues!
4. To elevate more professionalism, we
seek to inspire and educate on how to
Be Prepared; Up Your Game
and Choose Success.
Our mission and goal in serving you:
5. Why You Hate the Numbers
• Not good at it…
• No time; You’re too busy doing “the work”
• Just can’t keep track of all the receipts
• Not sure what to track and what not to
track
• Don’t know how to organize and create
systems on all the ways the money comes
and goes…
6. Why You Hate the Numbers
cont…
• It’s not “GLAM”!
• Don’t know what to do so you practice
avoidance until April 15th
…
7. Why You SHOULD
Love Your Numbers
• Prevent overdrawn bank accounts and the
fees the banks steal from us (my
apologies to all the bankers in the house!)
• Avoid being disorganized at tax time…
wasted time and money
• Business Mgmt. Decisions…Long and
Short Term
• ROI
8. Number One Reason to
LOVE Your Numbers…
• Being in control of your numbers…
– Saves you time…
– Saves you money
– MAKES you money
– Helps you avoid effort
…all so you can concentrate on all the “GLAM”
work in your business…which is the reason
you went into business in the first place!
9. 99
Today’s Overview
• The difference between budgeting and
forecasting
• Why having both are important in
business
• Simple steps for creating a budget and
forecast
• The types of managerial decisions that
can be made by having a good budget
and forecast
10. 1010
The difference between
budgeting and forecasting
• Usually done once a year, the budget sets
minimum requirements for a company to
meet its financial goals.
• Done more often, a forecast is usually an
expectation of what is likely to happen
based on more current indicators.
11. 1111
Resources and Tools
Needed for Budgeting
• Time, Staff and Software all needed to:
– Gather information – both current and historical
– Create a model – timeframe to be used
– Make assumptions – for increases/decreases
– Compare and evaluate data – what does it tell
you?
12. 12
Steps in Developing a Budget
• Establish a base year or period
• Assess revenue and expenditure
growth trends
• Clearly specify underlying
assumptions
• Assess the reliability of the data used
in assumptions
13.
14. Three Easy Steps in
Developing a Budget
• Calculate a daily rate (total divided by
92)
• Annualize your base period (multiply
the daily rate x 365 days)
• Create your annual budget based on
the number of days in the month.
(multiply the daily rate x number of
days in each month)
15.
16. 16
Take Small Bites
• Don’t try to project everything
• Pick the big things
– Revenue
– Salaries
– Marketing and Advertising
– Office Expenses
• Narrow those down
– Service vs Product Revenue
– Full vs Part-time salaries
– Print and Online Resources
– Phone, Fax, Internet, etc.
17. 17
Adjust Where Necessary…
• Controllable
– Part-time salaries; virtual administrative help
– Non performing marketing methods
– Non essential supplies
• Uncontrollable
– Utilities
– Debt Payments
– Full-time salaries
18. 18
Growth = Changes, changes…
• You’ve hired a new sales person…
• You now offer two new products…
• You’ve purchased a new color laser
printer to replace the old black and
white inkjet…
• You’ve just hired a coach
19.
20. Now, Forecast Monthly…
• Create a forecast using your budget
and current indicators.
• Increase or decrease the numbers
based on what’s happening in your
business now…
• This new schedule of numbers is now
known as your Forecast
21. And Enter Your Actual
Results…
• Look at your numbers monthly or at
least, quarterly…
• Look for out of the ordinary swings
from budget and forecast and make a
note…
• Make improvements to operations or
find more revenue!
22.
23. 2323
What Will This Tell Me?
Comparing and Evaluating Your
Budget/Forecast
• How does our position look compared to
last year? Three years ago?
• Will we have enough funds to continue
services and operate? To increase them?
• Do we need to find new sources of
revenue?
• Should we postpone or cancel the big,
office party next month?
24. 2424
Final Tips…
• Being Conservative is Best
– Estimate variable revenues low
– Estimate variable expenses like utilities higher
than what you may spend
• This will help to provide “emergency”
dollars if your revenue does come in lower
and/or expenses are higher
25. 2525
Final Tips…
• Projections are estimates of future
operating results
– YOU WILL BE WRONG! SO PREPARE!
• Projections can backfire
– The “Chicken Little” Syndrome
– Don’t be the “We’re Going Broke” Poster Child
26. 2626
Budgeting and Forecasting is
Not an Exact Science
• It is a both an art (best “guesstimates”)
and a science (actual past figures)
• It is NOT a fossil – once done, it is not
done forever. To be meaningful, it must
be constantly updated
• The more you work on your budgeting and
forecasting, the more “in tune” you
become with your business and how it
operates.
-Who in here likes working on the bookkeeping and number crunching in their business? -I don’t know many that do -It’s boring to most people who aren’t accountants…and even for us, the numbers can be VERY boring and tedious. (My compelling story) – Popular in high school…headed to college to be a physical therapist to someday work with famous professional athletes… Ok, Boring! Always was and always will be. But! It’s a game to people like me. I love anticipating what will happen after I’ve “predicted” what will happen. It’s almost like fortune telling. I absolutely LOVE the game! So…I’ve decided to rename my talk here today…to make it more appealing and more interesting.
I use a monthly cash position forecast to help me figure out how much funds, if any, I have to invest on a daily or weekly basis. Of course, your forecast will help you develop next year’s budget, including your carryover which is becoming more and more important to all of us. How many of you are involved in developing a budget for your biz? You may not realize it, but if you develop a budget, you are already using forecasting. It just may not be formally on paper. But you are estimating your revenues and expenses; you are using your business’s financial history to project your future receipts and expenditures. How much did we collect in revenue in the last 3 years? How much did we spend on advertising last year? If your business is doing a long-range plan, you can use your forecast to get an idea of how much money you will have to provide the items on the plan. You can also use your strategic or long-range plan to do your forecast! If your stakeholder team has in it’s plan to buy a new delivery truck or a new computer in the next year or two; you would want to include that in your forecast. Again, your forecast will let you know if you will have enough funds for any large capital expenditures
Budgeting takes resources. Once you set one up on a spreadsheet, it can take less time to use in the future. Last step is critical – it doesn’t do anyone any good to go through the work of developing a forecast if you never evaluate the data or compare your actuals to your forecast itself. What do we learn from the document?
Pick a year or period that best represents the reality in your business as it operates today. Sometimes it’s also good to go back a few or even several years in creating your base year or period....or at least look at those previous years. This lets you see any trends you may have forgotten about. Make sure you specify your assumptions – remember this document will probably be read by other people besides you – so they will need to know your assumptions… and they need to have some merit!
This is the most successful quarter from 2009. It also represents the best time period in terms of normal expenses incurred. There are several types of expenses missing…we’ll talk about those next when we create the final budget.
This method is easy; reliable and is widely used in corporate America, especially for businesses that don’t have a lot of seasonality.
Talk about any new revenue streams being generated in the new year; and any changes to current revenue streams, ie. new marketing methods that may bring in new business, economic indicators, loss of recurring accounts, etc. Talk about adding in one time and annually recurring expenses not incurred in the base period. Talk about adding in any anticipated expenses due to a change in business operations or for growth.
We have expenses that we have some control over and those that are set. We have to control the controllable so that we have the money to pay the heat, lights, debts and our salaries
Budget vs Actual Forecast vs Actual Why?
-Note the areas where and why the budget was increased to create the forecast. -Notice that although you increased revenue, you also increased expenses. -The margin numbers tell you a story. Both budget and forecast margin variances show a decrease. This means that the business did not operate as profitably as it did when the budget was created. -Explain that the increases in revenue have matching increases in expenses. That doesn’t mean it’s a smart idea to go on a shopping spree. -What it means is, now is the time to look at the goals and objectives of the business and decide how best to invest in the company.
Last step is critical – it doesn’t do anyone any good to go through the work of developing a forecast if you never evaluate the data or compare your actuals to your forecast itself. What do we learn from the document?
1. Estimate low rather than high for revenue 2. Estimate high rather than low for expenses
The Chicken Little Syndrome - It was about a chicken who had something fall on its head…thought that the sky was falling, and convinced the other chickens that the sky was indeed falling. Caused lots of panic, depleted moral and productivity tanked! All because the chicken didn’t do his homework to find out what really happened. My facts may be wrong, but that is the essence of the story.