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What are Today's Topics & Why is it Important?
Knowledge to Take Action
The last article covered Accounting & Invoicing with a reference to ABC or Activity Based Costing. Putting together an effective budget doesn’t require ABC but sure helps. We start this discussion with the types of budgets available to a landscape business owner and then focus on where to start. One last thought, a budget has two demands to be effective: accuracy and forecasting.
Types of Budgeting Systems.
This should have you asking “which is the best for my business?” My recommendation is to start in this order.
Start with either the Traditional or Zero-based System, then as your competence and confidence increases move to Flexible and Rolling Budgets. Now the question moves from the system to its use. This is a quick overview, and we choose the choices most appropriate for small landscape companies.
Your Options: Master Budget, Operating Budget, Financial Budget, Cash Budget, Labor Budget, Capital Budget, and Strategic Budget. Our recommendation is to start with the operational budget and then add the cash budget.
This is nothing more than taking the statements or reports - balance sheet and profit-and-loss statement and using it to project up coming months. This is simple, on a spreadsheet create the same categories as the balance sheet by the month. Place these in the rows (on the left side). Then across the top create 3 columns for each month: JUNE2019A (this month last year), JUN2020F (your estimated numbers for the month), and JUN2020A (what actually happened). Now you are ready to track this month last year against this year, and what happened.
The payoff - you can ask why it differs from the forecast and make adjustments to the next month.
Just like the Operating Budget, this budget uses one of the big 3 financial statements - Monthly Cash Flow Statement. Create a new spreadsheet on the same document and do the same thing. Using the items on the Cash Flow Statement, place it in the rows on the left. Then along the top create three columns for each month - this month last year, this months forecast, and actual use of cash for the month.
The payoff - you can track use and ask the why question when something looks off track.
Hopefully we have made this sound as simple as it is. The challenge is the time commitment to keeps this up to date weekly. Once you do it, the power of budgeting is clear. The result - you can control how much you spend on what and when
What You Need to Do
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