In our previous article, we outlined the first step in your business recovery planning – creating or updating your personal budget.
Once you’ve done your personal budget, you can build up your revised business budget.
We recommend what we call a bottom-up process, where you start with the increase in cash you want to achieve for the month, quarter or year. It’s important to start here as many businesses have found that they didn’t have a sufficient ‘war chest’ of cash going into the lockdown.
This is not designed to be technical accountantese here – we just want to show you how you can take control back by going through a high-level step by step process.
Your revised business budget
- Gross Revenue Gross
- ProfitGross Profit %
- Net Profit before tax
- Net Profit after tax
- Drawings (not included in wages)
- Asset purchases/(sales)
- Loan principal repaid/(drawn)
- Other cash movements
- Increase/(decrease) in cash
Calculating your revised business budget
- Increase/(decrease) in cash – start with the change in cash position you’d like for the particular period. Ideally, this should be an increase😊. We also recommend setting up a separate bank account to accumulate a cash reserve. Experience from this crisis has shown that you should aim to have a cash reserves to cover 3 to possibly 6 months overheads.
- Other cash movements – you may be able to free up cash by reducing debtors, stock, or work in progress levels or by negotiating better terms with suppliers.
- Loan principal – you need to allow for the principal repayments on existing and any new finance.
- Asset purchases / (sales) – there may be new assets you need or obsolete ones to sell.
- Drawings – here’s where you add in your personal budget from your personal budget.
- Net profit after tax – adding or subtracting these items gives you the target profit after tax you need.
- Income Tax – then add in what the tax will be to get your required profit before tax.
- Overheads – then have a careful look at your overheads to see if savings can be made.
- Gross Profit – Adding your Overheads to your Net profit before tax will give you your required gross profit.
- Sales – Using your desired gross profit percentage, you can derive the sales level required to give you what you need from the business.
- Review and confirm your budget – Then it’s all about reviewing these numbers and margins to ensure you can come up with a workable revised budget.
Ideally, from here you’ll then complete a more detailed forecast on a weekly or at least monthly basis so you have a starting point from which to track your progress.
If you have any queries on calculating your revised business budget, get in touch with us.
And for an outline of the Business Recovery Planning process, register for our free webinar at 11am next Wednesday, 3 June by clicking here.