Financial Mastery Budgeting Basics – Part 1

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Keith Cunningham in his book (Keys to the Vault) says that:

“Numbers are the language of business. If you can’t speak the language, then you can’t understand the business”.

And he is spot on.  As you finish out the 2010/11 tax year strong (remember, lots of time left for sales and profits), you need to start thinking about your budget for the 2011/12 tax year.  A company with a budget can hit their numbers.  A company without a budget ends up where they end up.  Which does you and your business deserve?

When building your budget, think of the following:

1. Revenues – broken into repeat customers and new customers.  Your repeat customer segment needs different strategies than your new customer segment.
2. Variable expenses – what it costs to make your product or service.  These are costs that are incurred when you deliver your sales (and typically don’t have when you don’t sell).
3. Fixed costs – costs you’ll have regardless of sales which includes rent, utilities (for the most part) fixed salaries, car payments, leases, etc.  It should also include a minimum fixed salary for yourself, an amount for desired profit, and an amount for retirement investment.

Two ways to make money as the owner – salary/dividends while running the business and the cash out at the end (exit strategy).  Make sure you are planning for both.

Inflate your fixed costs a bit to inflate your break even and drive higher sales.  More on this to follow is a series of blogs.

Image: Rasmus Thomsen / FreeDigitalPhotos.net