BEGINNING NEXT YEAR’S BUDGET
As 2014 begins to wane, consider 2015 budget
By Jim Kendall
This column originally appeared in the October 20, 2014 Daily Herald
Unless yours is a holiday-dependent business, you probably know how your 2014 results will look, and you’ve either had or are about to have a talk with your accountant about final 2014 taxes.
But what’s the outlook for 2015?
How that question is answered depends very much on the type and size of your small business: A service business with a handful of employees has different budget planning needs than a manufacturer with, as Tony Battaglia says, “more moving parts.”
In almost either situation, however, “Your lender is going to ask what you see for 2015,” Battaglia says. “So will a good tax accountant.”
Battaglia, a CPA and one of those tax accountants, is a CFO Advisor at BIK & Co. LLP, a Palatine CPA firm.
It takes preparation to build a budget which not only answers the what-about-next-year question but provides a measuring stick as the coming year progresses. Generally, and certainly for our purposes, “The budget is your forecast for next year,” Battaglia says.
“The really good businesses will have a business plan in place,” says Brian Eisenmenger, CEO at Eisenmenger & Co., a Wheaton CPA firm that deals mostly with smaller service businesses. “Others will just go along, because 2015 will be like 2014 which was like 2013 which was like 2012.
For the larger but technically still small businesses that BIK sees, “November is a good time to start the planning process,” Battaglia says. “Lenders want year-end results, plus next year’s budget.”
The budget plan “starts with revenues,” says Battaglia. “The best approach is to meet first with your sales group to get a sense of what’s happening in the marketplace – especially what will sell, when and at what price.
“Be careful with the sales budget, though,” he adds. “Sales people tend to be rosy.”
The next step, according to Battaglia, “is to have a similar discussion with your operations staff. Look at the manufacturing process, production costs and possible efficiencies.
“Look at purchasing, too. What’s the outlook for commodities – oil prices, for example?”
Because there typically is no large, costly equipment to purchase at a small service business – buying a new tablet or phone for each of your employees isn’t the same as purchasing a new widget-maker, for example – budgeting for the year ahead is relatively straight-forward.
It’s no less important, however.
“We can pretty much say we know how 2014 will turn out, tax-wise,” Eisenmenger says.
“We know the rent, the utilities, the phone. We may want to know what the numbers would look like if we hired two new people – or let someone go.
“For many small businesses, what’s important is to improve cash flow,” Eisenmenger continues. “We look at receivables, (where) the number one rule is to get the money. And we look at payables. There’s no need to pay two days after you receive an invoice.”