Advantages of predicting profit and loss in advance

Do you have an idea of how much money your business will bring over the next year?

Are you aware of all the expenses you are going to face in the upcoming 12 months?

When you are running your own business, it’s so easy to get involved in a day to day problems and circumstances, that you will forget the bigger picture. Successful business companies invest time to create and manage budgets, review business plans and regularly monitor finance and performance.

Structured planning can make all the difference in the growth of your business. For sure it will enable you to concentrate resources on reducing costs and increasing returns on investment.

The most important thing is that plans are made, they are dynamic and are communicated to everyone involved.

Benefits 

The key benefit of business planning is that it allows you to focus on the direction of your business and provides targets that will help your business grow.

  • Business planning can lead you to:
  • Better ability to make continuous improvements
  • Better ability to anticipate problems
  • Improve clarity and focus
  • Better confidence in your decision- making

Prepare your Annual Plan

  • Your Annual plan should include:
  • An outline of changes that you want to make to your business
  • Potential changes to your market, customers, and competition
  • Your goals for the upcoming year
  • Any issues or problems
  • Information about your people and the management 
  • Any operational changes 
  • Your financial performance and forecasts 

Business planning cycle

  • Review your current performance: Last year/ current year targets.
  • Work out your opportunities and threats.
  • Analyze your successes and failures during the previous year.
  • Identify and refine the resource implications of your review and build a budget.
  • Define the New financial year’s profit and loss and balance sheet targets.
  • Review it regularly- for example on a monthly basis.

Use your budget to measure performance 

  • Your budget can serve as:
  • An indicator of the costs and revenues linked to each of your activities
  • Supporting management decisions throughout the year 
  • A means of monitoring your business, particularly if you analyze the differences between your actual and budgeted income

Review your budget regularly

In order to use your budget effectively, you will need to review and revise them frequently. This is true if your business is growing and you are planning to move into new areas.

Your income:

  • Each month compare your actual income with your sales budget by:
  • Analyzing the reasons for any shortfall- like lower sales volumes, flat markets
  • Considering the reasons for particularly high turnover- whether your targets were too low

Your expenditure – regularly review your actual expenditure against your budget. This will help you predict your future costs.

  • Look at how your fixed costs differed from your budget
  • Check that your variable costs were in line with your budget 
  • Analyze any reasons for changes in the relationship between costs

 

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