How do you project the quantity of goods to be purchased for the designated period ?
Inventory is what your company holds in stock at any given time. Controlling inventory can be a specific designation. It is receiving stock, distributing it correctly, stock flow, which is forecasting, storage and space control, quality control and more.
Inventory budgeting is a vital part of the budgeting process, yet it can be the most difficult to set up, for a variety of reasons.
There are various factors that come into consideration when processing your inventory budgeting. You would need to look at the current market, international and local; The amount of stock that you would require could change the value of your expenditure; product customization, ie creating something specifically for a particular customer. You will only discover half of your company's needs and requirements, once you have started the process.
There are a few ways to do inventory budgeting. It would ultimately be best if a ladder system were used; ie raw materials, current production and finished goods, but there will normally be a dominant system that an individual company will be more comfortable using.
Raw Materials budgeting is the very beginning of any project. That is every single item that you would require to even begin a project. You would need to ensure that you know what your project needs to succeed. You would begin by normally working off a design and understanding the quantity you would require to begin and to carry you through the project. You would need to deduct any stock related to this, that you may already have on hand. Ensure that your purchasing plan keeps you ahead of the project, so everything is on hand as you need it. Bear in mind that this system cannot always work, for example in a case of doing something to customer specifications. You may have a general idea of what is required, but there will probably be a few unforeseens in situations like that. Along with your purchasing plan, you also need to budget the labor. How long will or should this project take. What are the value of your man hours and how will it affect the company if there should be a strike, or overtime or even a machine breakdown. These are just examples of a few what ifs.
And ending inventory can be determined through, what you brought forward in your stock, to what purchases were necessary for your project it is the remainder of the stock, or stock to carry forward, into the next period.
You can calculate your production budget by adding what you want the sales to be and what inventory you want left over at the end of the period and then subtracting the value of the inventory that you had in the beginning of the period. This would be in direct regard to manufacturing or fabrication. Should you be a wholesaler, retailer, distributor or reseller, then it would simply be a matter of stock control. What you have on the floor, in your storeroom, what your average sales are, therefore telling you the quantity of what you should purchase to maintain a consistent flow.
Some companies prefer to do a total budget. They may have quoted a certain amount and all costs would need to be covered by the sale. This is not always a wise way to budget. Sometimes circumstances can be so unpredictable that the loss the company may experience, may be seriously damaging.
Sunday, March 21, 2010
Monday, March 15, 2010
Why Sales Revenue Planning Is The Cornerstone Of Your Business
Your company has just made record profit, or record loss. A revenue plan should absolutely be put into place to allow you to see exactly where, how and why this happened.
A revenue plan keeps you ahead in your company it is exactly what it says a Plan of where you want your company to go financially and no matter the outcome, it allows you to see where you may have perhaps gone wrong, and to re-evaluate your plan of action.
Your revenue plan needs to be realistic. Very few companies are going to make millions in their first year. Work with what is attainable. Keep your targets in range of the reality of your business and what profit you probably will make as opposed to what you want to make.
Plans are technically a form of the outline of a company. They are used more as informational guides, as opposed to budgets, which, generally, are strictly set. However, your revenue plan can work alongside with your budgeting process. It is a way of seeing where you want to lead your company, and yet, will also show you any limitations that your company may have in achieving the desired results immediately. Your company's revenue plan is a vital management tool that aids in the forming of your budget.
You will begin with your initial plan. This is where you have your ideals of the situation and direction of your company. However, as your financial year progresses, it is very likely, that your revenue plan will too. So many variations will undoubtedly come into play that perhaps were overlooked. You may have more unforseeable than remotely expected, or alternatively, your expenses may end up being less than what you budgeted for, allowing for a larger profit margin.
Regardless, the chances are that your plan will change.
Your plan can be done alongside your budgeting. So if your company does a monthly, quarterly, biannual or annual budget, so can your plan be done. As mentioned, it is NOT a form of budget, but merely a guideline to work with.
Just bear in mind, that although it is a plan that can be used with your budgets, which tend to focus on expenditure, you will also do a revenue plan. In other words, the manner, timeline etc, of how you will receive money into the company.
For any company, you have to get as much information as possible, to ensure a greater success. It is worth taking the time to do your planning, to ensure that your guidelines and direction are clear, and that the potential to move forward is possible.
A revenue plan keeps you ahead in your company it is exactly what it says a Plan of where you want your company to go financially and no matter the outcome, it allows you to see where you may have perhaps gone wrong, and to re-evaluate your plan of action.
Your revenue plan needs to be realistic. Very few companies are going to make millions in their first year. Work with what is attainable. Keep your targets in range of the reality of your business and what profit you probably will make as opposed to what you want to make.
Plans are technically a form of the outline of a company. They are used more as informational guides, as opposed to budgets, which, generally, are strictly set. However, your revenue plan can work alongside with your budgeting process. It is a way of seeing where you want to lead your company, and yet, will also show you any limitations that your company may have in achieving the desired results immediately. Your company's revenue plan is a vital management tool that aids in the forming of your budget.
You will begin with your initial plan. This is where you have your ideals of the situation and direction of your company. However, as your financial year progresses, it is very likely, that your revenue plan will too. So many variations will undoubtedly come into play that perhaps were overlooked. You may have more unforseeable than remotely expected, or alternatively, your expenses may end up being less than what you budgeted for, allowing for a larger profit margin.
Regardless, the chances are that your plan will change.
Your plan can be done alongside your budgeting. So if your company does a monthly, quarterly, biannual or annual budget, so can your plan be done. As mentioned, it is NOT a form of budget, but merely a guideline to work with.
Just bear in mind, that although it is a plan that can be used with your budgets, which tend to focus on expenditure, you will also do a revenue plan. In other words, the manner, timeline etc, of how you will receive money into the company.
For any company, you have to get as much information as possible, to ensure a greater success. It is worth taking the time to do your planning, to ensure that your guidelines and direction are clear, and that the potential to move forward is possible.
Thursday, March 11, 2010
Expense Budgets And The Impact On Profitability
Budgets, particularly expense budgets, are put in place as a basis for control.
Budgets are the saviour of any company. Without any form of budgeting, it can be near to impossible to project where your company is heading. There needs to be a limit on expenditure, because all too often it is so easy to spend unnecessarily, and that can destroy profits.
Staying the Course
Even with other information available, such as balance sheets and cash flow charts, it can be really easy to sway from your objective and this may be quite unintentional BUT may result in possible liquidation, and it would be partly due to the bad management of budgets.
Research
There is a reasonable amount of research that would need to go into the preparation of any kind of budget. Make it too small, and you lose, make it too big and what could have been allocated elsewhere is now stuck in "limbo", possibly resulting in a smaller future budget, limiting you in some ways.
Precision
Expense budgets show reasonably precisely what is needed to to be done to effectively produce a product or service and allow for a profit from this. Expense budgets are put in place to show what it is you want to achieve. What is your goal ? Sales, but sales with a decent profit.
Reaching your Goals
How are you going to reach your goal what is the most cost effective route to obtain optimum results and making sure your customers are happy. What are your labour costs going to be and how long will it take for any particular project to be completed. And most importantantly, the future is unpredictable and there will always be unforseeable circumstances, so even these need to be catered for.
Realistic Planning
All budgets need to be realistic it's pointless finding an item that costs a third of the price in shop one than in shop three, but it's cost you extra time on a phone, in dealing with sales staff in the negotiation of the cheaper price and possibly things like transport or availability/unavailability may end up making up the difference in the cost anyway, possibly creating something that is now more expensive.
System
Every company has a design, resale, software, wholesale, and fabrication process, and all of these have a certain system to allow for the running of the company, and having a well planned budget in place can only make your company run smoother, more efficiently and professionally.
Its obvious that without a clear view of the costs and expenses in your business you are sailing without a rudder. Put expense budgeting into place and you will often be surprised at much you overspend. It could be the key to profitability you have been looking for.
Budgets are the saviour of any company. Without any form of budgeting, it can be near to impossible to project where your company is heading. There needs to be a limit on expenditure, because all too often it is so easy to spend unnecessarily, and that can destroy profits.
Staying the Course
Even with other information available, such as balance sheets and cash flow charts, it can be really easy to sway from your objective and this may be quite unintentional BUT may result in possible liquidation, and it would be partly due to the bad management of budgets.
Research
There is a reasonable amount of research that would need to go into the preparation of any kind of budget. Make it too small, and you lose, make it too big and what could have been allocated elsewhere is now stuck in "limbo", possibly resulting in a smaller future budget, limiting you in some ways.
Precision
Expense budgets show reasonably precisely what is needed to to be done to effectively produce a product or service and allow for a profit from this. Expense budgets are put in place to show what it is you want to achieve. What is your goal ? Sales, but sales with a decent profit.
Reaching your Goals
How are you going to reach your goal what is the most cost effective route to obtain optimum results and making sure your customers are happy. What are your labour costs going to be and how long will it take for any particular project to be completed. And most importantantly, the future is unpredictable and there will always be unforseeable circumstances, so even these need to be catered for.
Realistic Planning
All budgets need to be realistic it's pointless finding an item that costs a third of the price in shop one than in shop three, but it's cost you extra time on a phone, in dealing with sales staff in the negotiation of the cheaper price and possibly things like transport or availability/unavailability may end up making up the difference in the cost anyway, possibly creating something that is now more expensive.
System
Every company has a design, resale, software, wholesale, and fabrication process, and all of these have a certain system to allow for the running of the company, and having a well planned budget in place can only make your company run smoother, more efficiently and professionally.
Its obvious that without a clear view of the costs and expenses in your business you are sailing without a rudder. Put expense budgeting into place and you will often be surprised at much you overspend. It could be the key to profitability you have been looking for.
Monday, March 1, 2010
Why Sales Forecasts Are Critical
If you want to achieve your goals and the goals for your company, your starting point is to create a viable budget that allows you to better understand the path of your company.
Many people cringe at the thought of budget time, but it need not be a torturous affair. Once a system and routine is established, it should be a fairly quick and simple process to complete your sales forecasts.
Many people, throughout their home lives and educational careers, are taught how and why to save money but how many people truly know how to spend it wisely?
You want to build a house and you have spent some time saving enough money with which to create your dream. But you have no knowledge of where, what or how many to buy of the products needed for the construction. The chances are quite good that it will be a failure because the knowledge was not there.
You need to be prepared, for any eventuality. You need to be prepared in your information, education and understanding of your project or your business for it to be a success.
Running, maintaining and respecting a budget is probably the most effective financial tool. Without a budget it is almost impossible to judge how much revenue you need to have brought in to cover the outlays your company has made.
A budget is a plan. And a plan that is carried through equals success.
You need to have a balance between budgets ie sales and expense. You need an expense budget to see how much you need to invest in products or ideas for your company to grow and thereafter, you need a sales budget because you have to be certain that what your company brings in financially, will pay for your expenses and still allow a profit.
It is pointless spending a fortune and getting, in revenue, any percent less of your outlay value. There you have already thrown out any form of profit and without having a budget plan, you have lost already.
It is vital that you have a sales budget plan, because it clearly allows you to see how far you can extend your expenditure and where exactly your bottom line is.
A sales budget, or any budget for that matter, should be put in place to allow you to begin controlling and leading the power of your money.
How does one go about doing this ?
In its simplest form you could scribble down your expenses on a sheet of paper in one column and in a another column forecast your prospective sales for the year. If your sales income exceeds your expenses then you are succeeding.
For more complex business environments you will need to use a much more formal approach and use some form of software, but the principles are the same.
Many people cringe at the thought of budget time, but it need not be a torturous affair. Once a system and routine is established, it should be a fairly quick and simple process to complete your sales forecasts.
Many people, throughout their home lives and educational careers, are taught how and why to save money but how many people truly know how to spend it wisely?
You want to build a house and you have spent some time saving enough money with which to create your dream. But you have no knowledge of where, what or how many to buy of the products needed for the construction. The chances are quite good that it will be a failure because the knowledge was not there.
You need to be prepared, for any eventuality. You need to be prepared in your information, education and understanding of your project or your business for it to be a success.
Running, maintaining and respecting a budget is probably the most effective financial tool. Without a budget it is almost impossible to judge how much revenue you need to have brought in to cover the outlays your company has made.
A budget is a plan. And a plan that is carried through equals success.
You need to have a balance between budgets ie sales and expense. You need an expense budget to see how much you need to invest in products or ideas for your company to grow and thereafter, you need a sales budget because you have to be certain that what your company brings in financially, will pay for your expenses and still allow a profit.
It is pointless spending a fortune and getting, in revenue, any percent less of your outlay value. There you have already thrown out any form of profit and without having a budget plan, you have lost already.
It is vital that you have a sales budget plan, because it clearly allows you to see how far you can extend your expenditure and where exactly your bottom line is.
A sales budget, or any budget for that matter, should be put in place to allow you to begin controlling and leading the power of your money.
How does one go about doing this ?
In its simplest form you could scribble down your expenses on a sheet of paper in one column and in a another column forecast your prospective sales for the year. If your sales income exceeds your expenses then you are succeeding.
For more complex business environments you will need to use a much more formal approach and use some form of software, but the principles are the same.
Top 8 Cash Flow Management Techniques For Your Business
Cash flow management is the how and why of monitoring and analysing the in and out flow of your company's cash.
Cash flow refers to the money that comes in and out of your company, through sales and expenditure.
Once you have determined your cash flow, you will be able to see for a certain period what funds your company will have available.
Avoiding Shortages
Logically, most companies would need to avoid long periods with a shortage of cash. This ultimately affects your creditors and staff and you would not stay in business for any significant amount of time.
Analysis
It is important to do regular cash flow analyses. Doing so will enable you to see any potential shortcomings and over-expenditure, and to get an early view over the direction that your running financials are taking.
Improving the flow
You will need to learn how to improve and manage your cash flow. You can begin by looking at your customer structure. For example, instead of running your company on a sixty day system, try change your system to a thirty or forty five day standard system.
Credit Control
Ensure that your customers are aware of any changes you may make, and should they not follow your adjustment, then you have every right to charge penalty interest. There are some companies that would be a little wary of what may seem to be drastic, however, many business still work on a trust system, and very few customers would refuse you their business and take it elsewhere. Understand how credit control works, and implement it. This way you can ensure awareness of exactly where your money is, and to stop a potential problem as early as possible.
Following Through
Ensure that you are able to fulfill your orders. Do not make promises to customers and then not follow through. Bad service, false promises etc are always remembered. The quickest way to go out of business is to fail to fulfil bargains that you may have reached. Remember, you could have potentially avoided this if you had correctly followed your budget and understood your cash flow.
Credit Terms
Similarly, you could also look at your supplier structure. Try and get extended credit terms. It may seem a little contradictory after shortening your creditor terms, but we are looking at what is best for your company to continue growing and being successful.
Negotiation
Everything is negotiable. So negotiate your stocks, your prices, availability, stock holding etc. Make sure that you have all the necessary support from your suppliers. Remember, just as your customers are important to you, so you are important to your suppliers as a customer.
Capital Outlay
You could also relook at the idea of purchasing fixed assets outright. In other words, should you need certain equipment to create the product you need to make to get revenue in to your company, it may be more logical to either hire / lease the equipment or to purchase it through hire purchase. Remember, we are looking short term, so we are not looking at what the interest affects would be, but rather to save money now, and possible put a large outlay once the company is more established and stable.
Put these 8 tactics in play and your business should not just survive, it should thrive.
Cash flow refers to the money that comes in and out of your company, through sales and expenditure.
Once you have determined your cash flow, you will be able to see for a certain period what funds your company will have available.
Avoiding Shortages
Logically, most companies would need to avoid long periods with a shortage of cash. This ultimately affects your creditors and staff and you would not stay in business for any significant amount of time.
Analysis
It is important to do regular cash flow analyses. Doing so will enable you to see any potential shortcomings and over-expenditure, and to get an early view over the direction that your running financials are taking.
Improving the flow
You will need to learn how to improve and manage your cash flow. You can begin by looking at your customer structure. For example, instead of running your company on a sixty day system, try change your system to a thirty or forty five day standard system.
Credit Control
Ensure that your customers are aware of any changes you may make, and should they not follow your adjustment, then you have every right to charge penalty interest. There are some companies that would be a little wary of what may seem to be drastic, however, many business still work on a trust system, and very few customers would refuse you their business and take it elsewhere. Understand how credit control works, and implement it. This way you can ensure awareness of exactly where your money is, and to stop a potential problem as early as possible.
Following Through
Ensure that you are able to fulfill your orders. Do not make promises to customers and then not follow through. Bad service, false promises etc are always remembered. The quickest way to go out of business is to fail to fulfil bargains that you may have reached. Remember, you could have potentially avoided this if you had correctly followed your budget and understood your cash flow.
Credit Terms
Similarly, you could also look at your supplier structure. Try and get extended credit terms. It may seem a little contradictory after shortening your creditor terms, but we are looking at what is best for your company to continue growing and being successful.
Negotiation
Everything is negotiable. So negotiate your stocks, your prices, availability, stock holding etc. Make sure that you have all the necessary support from your suppliers. Remember, just as your customers are important to you, so you are important to your suppliers as a customer.
Capital Outlay
You could also relook at the idea of purchasing fixed assets outright. In other words, should you need certain equipment to create the product you need to make to get revenue in to your company, it may be more logical to either hire / lease the equipment or to purchase it through hire purchase. Remember, we are looking short term, so we are not looking at what the interest affects would be, but rather to save money now, and possible put a large outlay once the company is more established and stable.
Put these 8 tactics in play and your business should not just survive, it should thrive.
Wednesday, February 17, 2010
Cash Flow, Expenses, Sales and the 2 other Pillars of Business Financial Budgeting
How does one control and manage the financial outlook of a company ? The key to it all is budgeting and forecasting and there are 5 aspects of the process that are critical for the health of your company.
1. Sales Forecasts
We all know that to make money, you have to sell something. Sales is the backbone of every company and without any sales there is nothing. Any form of sales is an agreement that one party, the seller, is going to provide a product or a service, which will earn either money or some form of compensation by the other party, the buyer.
2. Expense Budgets
Similarly, to make money you have to spend money. To fabricate, manufacture, distribute – the range of services is massive, but each one of these require a certain amount of output, regardless of the industry. No matter what type of service you may provide, there will always be some form of expenditure that you would need to outlay.
3. Cash Flow Forecasts
To keep total control and to understand where your money is coming and going, cash flow is vital. It's important to be aware of where the money is, at all times, regardless of how small an amount. The cash flow allows anybody, at a glance, to determine whether or not the company is in a viable position, on a short term basis, to pay its bills. Every single cent spent or earned affects the profit line.
4. Income Statement
An income statement, also known as the profit and loss statement, is a summary, for a certain period of time, that will allow any manager or business owner to be able to see immediately whether or not the company made or lost any revenue and in which particular area. Very simply – your income statement shows a sales amount and an expense amount. Subtract expenses from revenue and you have your bottom line.
5. Variance Analysis
Variance analysis allow you to understand the present cost, and use this knowledge to control future expenditure. An example could be that material is obtained today, but only half of it is used. Next month the remainder is used, but by that time, the cost of purchasing it may have risen, so even though you had it in stock, it still allows you to calculate what the market is dictating. It's the difference or comparison between actual costs/sales and budgeted costs/sales.
Combine these five pillars, and you have a very strong platform upon which you can make sound financial decisions and oversee the financial aspect of your company. Remember “cash is king” and without it you wont be able to pay your bills, buy stock or grow the business in a meaningful way.
1. Sales Forecasts
We all know that to make money, you have to sell something. Sales is the backbone of every company and without any sales there is nothing. Any form of sales is an agreement that one party, the seller, is going to provide a product or a service, which will earn either money or some form of compensation by the other party, the buyer.
2. Expense Budgets
Similarly, to make money you have to spend money. To fabricate, manufacture, distribute – the range of services is massive, but each one of these require a certain amount of output, regardless of the industry. No matter what type of service you may provide, there will always be some form of expenditure that you would need to outlay.
3. Cash Flow Forecasts
To keep total control and to understand where your money is coming and going, cash flow is vital. It's important to be aware of where the money is, at all times, regardless of how small an amount. The cash flow allows anybody, at a glance, to determine whether or not the company is in a viable position, on a short term basis, to pay its bills. Every single cent spent or earned affects the profit line.
4. Income Statement
An income statement, also known as the profit and loss statement, is a summary, for a certain period of time, that will allow any manager or business owner to be able to see immediately whether or not the company made or lost any revenue and in which particular area. Very simply – your income statement shows a sales amount and an expense amount. Subtract expenses from revenue and you have your bottom line.
5. Variance Analysis
Variance analysis allow you to understand the present cost, and use this knowledge to control future expenditure. An example could be that material is obtained today, but only half of it is used. Next month the remainder is used, but by that time, the cost of purchasing it may have risen, so even though you had it in stock, it still allows you to calculate what the market is dictating. It's the difference or comparison between actual costs/sales and budgeted costs/sales.
Combine these five pillars, and you have a very strong platform upon which you can make sound financial decisions and oversee the financial aspect of your company. Remember “cash is king” and without it you wont be able to pay your bills, buy stock or grow the business in a meaningful way.
Saturday, August 15, 2009
Short And Long-Term Planning, Forecasting, And Expense Budgeting - Part 2 of 2
This 2 part series is very direct and applies common sense in approach. The first part addressed Mapping out Your Sales Plan and Preparing and Revising Your Sales Forecast.
The second examines
- Aligning Your Expense Budget With Your Forecast and Sales Plan
- Practical Approaches to Opportunities in the Market
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