Financial Data
Updated 28 Sep 2020

Made to measure

Your budget is a great way to evaluate business performance year on year. By comparing your projected figures for the forthcoming year with previous years' figures, you can get a good measure of how well you are doing. Here's why.

02 April 2012  Share  0 comments  Print

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By analysing your business and understanding which areas are working well and which are costing money, you can ultimately improve performance. Measuring this on a regular basis also helps to highlight any cash flow issues or failings before they become a serious problem.

What to measure

To improve your business performance you need to understand the main drivers of it - ie, those factors that have a major impact on your operations.

There are many issues that can affect a business, so just concentrate on the few important ones that relate to yours, and monitor them closely.

The three key drivers for most businesses are sales, costs and working capital. Others can include availability of labour, seasonal sales, exchange rates, and industry laws and restrictions.

So, compare this year's sales against last year's sales, month on month and year on year.

Year on year will give you the big picture of how well you're performing overall, but a closer inspection month on month will throw up seasonal, holiday or celebratory occasions that make a difference - positively or negatively - to your sales.

These might include summer/winter, Christmas and Easter, Mother's Day or Valentine's Day, or even school holidays. And check to see if the cost of raw materials or services differ at various times of the year.

How to use the information

Think about encouraging some of your staff to take annual leave during the quieter periods. Also check if there is a decrease in quality or service during busy periods.

If so, consider producing extra stock during quieter periods to keep in reserve to avoid costly repairs and returns. Or if yours is a service industry, think about taking on casual staff during this time.

Buy in bulk when prices are at their lowest and store the materials; or arrange certain services - perhaps vehicle servicing or building maintenance - during the "off season".

This level of information can help you to create your marketing and promotional strategy for the year, offering specials or discounts in quieter times.

You can also reduce the purchase of materials and the use of casual staff in quieter times, and gear up in advance of traditional busy periods.

Let your budget work for you

Once you have a handle on exactly how your company is measuring up you can then benchmark its performance against the rest - and the best - in the industry. Learning from them can lead to your company performing better, faster and cheaper.

Your budget is a hardworking tool that can do many things for you. As well as displaying the costs and revenues related to each of your products or services, it can also be both a support and revision tool for management decisions made throughout the year.

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