This is the time of year that many of our clients are working on their budgets for next year. Some organisations struggle with how to get started with budgets.
Firstly, we would say that just taking this year’s budget and adding 3% to everything is generally not a good budget strategy!
It sounds obvious, but the first place to start is to actually look at how you are travelling this year compared to your budget – are there under or over areas that look like they will pan out through the rest of the year both on the income and expense side? How is our cash flow travelling?
For our school clients, once you pass that magic first Friday in August you know the student number of the current year that you are being funded on and that is often the biggest single income source that can really impact on the results!
The second phase is to look at the key assumptions for this year and then into next year (or even beyond) – what is happening with inflation, key expense areas, interest rates, staffing levels, salary rates, capital expenditure, debt levels, key income drivers (eg. For schools, think enrolments, school fees and government grant levels).
Getting those key assumptions right is really one of the biggest areas to focus on. Get them wrong, then the budget could be in serious trouble. We had a client a few years ago who thought their major source of revenue would grow by 9% in the year. The income line only went up 4% – major ramifications followed!
It is also important to remember to not just think profit & loss, but also look at what is happening with cash flow. Some of the areas we see problems for organisations who are not watching this comes from not managing their liabilities properly, in particular statutory things like Super and ATO obligations have brought some organisations unstuck. Similarly, not carefully managing the collection of debts, capital spending or managing debts are all issues to watch out for.
The actual mechanics of putting this all together then follows – which is where good old Excel comes into it for most organisations. Making the layout clear, with plenty of check formulas and a clear audit trail are all important ingredients.
Many organisations go through versions of the budget as they make strategic decisions, adjust assumptions and make sure they get the results they want in terms of profitability, cash flow and having a series of Key Performance Indicators they are measuring.
If you would like a hand with your Budget or a review – give Resolve a call!