The older I get, the more I realize that what seems simple in business is often unknown or underutilized. For years I have counseled and worked directly with business owners who had operated their companies without a financial plan, or budget. Perhaps all the disregard for this effective planning tool is that accountants have made it look unnecessary. After all, if you call taking last year’s results and increasing them by 5% a “budget”, then you are missing the point.

A budget should use last year’s results as a starting point, but in no way is it a replacement for accurately forecasting revenue based on your sales plan; for planning labor costs by position; knowing your target for gross profit margin; revenue per FTE to determine staffing levels; and targeting a net income that provides a return on equity equal to the risk you are assuming. You should prepare this budget by month, so that you have a report card to measure your performance against. I often have our business owner clients tell me that the budgeting process and the development of operating metrics are some of the most effective tools we provide.

What you plan for will most likely happen. That is the experience of our CFO clients. Maximize the opportunity you have to reach measurable goals in 2017 by planning ahead.

*AICPA Code of Professional Conduct, Rule 101; Interpretation 101-3