For most of you, July represents the half way point for 2016 results. This is an excellent time for business owners to review their performance to budget for the first six months of the year (you do have a budget, right?), as well as determining what adjustments may be needed. The job of management is not to predict the future, it’s to pave the way for the future.
With that in mind, here are nine (9) areas you want to address now to help pave the way for the second half of the year:
The main objective of this “deep dive” is to have a solid understanding of the variances between actual results and the budget. Where there are shortfalls, was that due to unrealistic expectations, timing, or changed conditions (for better or worse). Where your business did better, ask the same questions.
Armed with the analysis, we then look to determine if we need to alter the plan for the next 6 months, and also see what new information is available that should be incorporated in a budget update. For example, the upcoming revision to minimum wage and sick days in the City of San Diego will likely have an impact, as will the Federal change to the exempt minimum wage effective in November.
Lets’ assume that you have done all of the above, and have uploaded the budget to your accounting software. Now you can get the actual vs. budget each month, which is a start. Adding the first half of 2017 to your budget so that you keep at least a prospective year in front of you—that’s world class financial management. We have seen many companies that don’t add to the budget, so that by the time they are in the fourth quarter, they literally have a one or a two month budget left.
We generally recommend a monthly review, and at least a semi-annually update with extension. A quarterly review is preferred in larger, multi-location or product line companies. Many of our clients can’t change the budget once approved, either because it’s part of a loan agreement, bonus program, or for a non-profit who would need board approval, etc. That’s not a problem, in these cases we use a second budget (generally called the internal forecast) and make comparisons to both.
In summary, this is a great time to review your results, assess, make adjustments to your business and/or your budget to take stock of where you are, where you want to go, and the financial path forward to make it happen.
If you have any questions feel free to contact us at 858-622-1681 or firstname.lastname@example.org.