Whenever I walk into a new client situation the first thing I look for is a business scorecard. Sometimes if I am lucky I find that the client has an accountant who has put together a Profit and Loss statement. Of course, in most small businesses P&L statements are usually done by an outside accounting firm and usually do not get to the client until a month or so after the fact. Rarely do I find that a business has put together a budget (a financial plan). To me this is incredible and a little bit insane.
It is incredible because if you go into any business without a financial plan (budget) you do not have a clue about how much it is going to cost you to operate the business. Without a budget you do not have any control over your cost and expenses which may leave you without a profit. Without a budget you do not have a standard to compare your Profit and Loss statement to see if you are on a track for success, failure, or just survival. Without a budget to compare to you do not have a clue where in your Profit and Loss statement you should be making adjustments to ensure a profit and your business future.
Operating a business without a budget is pretty much like flying in the dark. Ask yourself where would a pilot end up without a flight plan? This picture pretty much lends itself to a business owner operating a business without a budget. Pretty crazy, don’t you think? Absolutely insane! Yet I see it everyday as I visit small business owners who are in trouble. And what is more incredible to me is that most accountants and CPA’s who prepare these Profit and Loss statements for the business owner never bother to develop a budget for their client so as to make sense of the Profit and Loss statements.
The other day I sat with a new internet business owner and his Marketing Director. They had already spent some money on developing a search engine for their business and were in the process of considering different promotions for their site, as well as, the possiblity of adding some sales staff. When I asked them about a budget their response was that it was too early to think about that subject. Yet they were already spending more money than they originally thought it would take to start their new venture. After some discussion I finally persuaded them to put together a budget. It took several attempts but we finally got them to come down from some unrealistic blue sky thinking to where they will probably end up at the end of the year now that they have a roadmap to follow. It was amazing for them to see how much they really knew about the business journey they were going to take after giving it some real thought. It really gave them a reality check and built some confidence now that they had a plan to follow instead of just flying by the seat of the pants.
Now building a budget or financial plan is not nuclear science. It just requries you to stop and think about what has to be done in your business and how much is it going to cost. Most of the cost and expenses are things that you will control. The unknown is how much sales are you going to generate and when. Here is where you need to really be conservative because you do not control when the customer buys. The best you can do is get his attention, create the desire and interest through your marketing and sales effort. Of course, doing some market research and seeing what the customer is buying will help you to better design your marketing program.
In a nutshell, to be successful in business you must be profitable because profits yield the cash you need to stay and grow your business. With a profit plan (budget) in place you will have the controls to ensure the profit you seek. All of which will eliminate business nightmares and allow you to better enjoy your business and some pleasant dreams.
Copyright © Donald N. Lombardi
Donald N. Lombardi is an Expert Author on Small Business Ideas. You can learn more about his articles by visiting his blog at https://businessadviceandcounsel.blogspot.com