Since you all read my last post , you know why you need a budget. Now let’s talk about how to build a budget.
If you tell me you have a revenue goal of $7 million, I will want to get a better understanding of what you sell and how you sell it. Meaning, do you sell 7 million $1 things, or ONE $7 million thing? Probably something in between.
Then we’ll talk about what it costs to deliver that revenue. How many people do you have? How much revenue can they deliver? How many more people do you need to hit $7,000,000? What else do you need besides people to deliver that revenue? More laptops? What about insurance? Do you need a larger office space? And more importantly, WHEN will we need those resources by?
Once we’ve laid everything out, VOILA! That’s your budget. A roadmap to $7 million. Maybe it shows you making $1 million dollars at the end of the year, or maybe it shows you losing $500k. DON’T PANIC! It’s an iterative process. So let’s go back and revisit our assumptions; if we were making money at $5 million, why are we losing money at $7 million?
Perhaps we’re selling too many lower-priced projects that don’t make a lot of money, so we need to shift our product mix. But if we do that, we probably need to add some Sales resources to our plan. And if we’re going to shift our product mix from more low-price contracts to fewer high-price contracts, we may need different types of people to service them. Now that you’ve zhuzhed your assumptions, your budget shows you making $1 million in profit, yay!
But what happens if we get to the end of Q1 and the market has shifted, and nobody is interested in your higher-price offerings? We may need to rethink our staffing roadmap because the Sales guy you want to hire doesn’t sell little projects and we don’t have enough junior folks to support the smaller projects.
We had a plan of making $7 million in revenue and $1 million in profit, and now it looks like we’re going to be closer to $6.5 million in revenue, but only $0.5 million in profit. Is it the ideal outcome? No. But… you laid out the groundwork when you created your budget so you don’t need to scramble or panic. You just need to change your spending habits going forward while still using the roadmap as a touchstone to see how far and WHY you’ve strayed. More on this in my next post.
If you don’t know how to start building your budget — or what to do with it once you have one — let’s talk it through.