Budget preparation is an important process

Budgets are best prepared for each individual business operation and not consolidated into an overall company budget.

For each business unit, there is a need to consider how will the income be generated, what are the direct costs and the overhead expenses for that business unit.

For tradies, professional services and manufacturing businesses, the key component is the sale of labour. This requires an analysis to be prepared of the team, identifying individual team members or groups of team members within categories to show:

• Work hours

• Less training and professional development time

• Hours available for sale

• Productivity percentage

• Net hours

• Hourly Charge out rate

• Projected annual/monthly income

The business may also be manufacturing individual products which will then need to be analysed showing the product, the manufacturing cost plus the mark-up to determine the sales value.

In a retail/wholesale business, there is a different approach.

These businesses purchase a range of products that can be classified into separate stock categories based on expected sales volume (high or low) and mark-up target (high or low).

The leadership team needs to identify volume estimates for the stock that has been purchased, to identify which stock category that particular stock item relates to.

Calculations can then be prepared to determine the estimated sales value and the gross profit to be generated from those sales.

A review then needs to be made, to determine whether the sales of that combination of stock categories is going to generate sufficient gross profit to pay the overhead costs and generate a net profit that is in line with the leadership team’s target.

The “budget process“ is very important for all businesses. Towers Business Development can assist you to implement an appropriate “budget strategy” for your business. Reach out to our Managing Director, Peter Towers, on 1800 232 088 or .