Reviewing the year-to-date budget and financial performance is critical for your business because it helps you to assess progress against goals. By following these steps, business owners can ensure that their budget remains a valuable tool for guiding financial decisions and achieving business goals throughout the year.
Begin your review by gathering your latest financial statements, such as the entity’s income statement, balance sheet, and cash flow statement. It is helpful to have summaries of previous years in order to compare revenue, expenses, and profit margins.
Next, take out the budget that was set at the beginning of the analysis period, and compare it to the actual financial performance. Where your business outperform expectations or fall short?
Key Questions to Consider:
- Where does actual revenue differ from the budget significantly?
- What are both internal and external factors for the changes (for example changes in market conditions)?
- Is money allocated to areas with the highest potential for return on investment?
- Where can expenses be reduced or optimized (for example, renegotiating vendor contracts, cutting non-essential spending, or improving operational efficiency?)
Schedule a budget review meeting with your accounting and financial teams, where you will set new financial goals for revenue, profit margins, and cost management for the remaining months of the year. Ensure that these goals align with the overall strategic objectives of the business, such as expanding market share or improving customer retention.
They will update your cash flow forecast based on the revised budget, taking into account expected revenue, upcoming expenses, and any changes in payment terms with customers or suppliers. This team should also consider any seasonal impacts on cash flow, such as increased sales during the holiday season or slow periods in certain months.
Finally, present the updated budget and financial goals to department heads, managers. Enter the revised budget into your financial management systems and tools. If you have investors, be prepared to explain the reasons behind any budget adjustments and how they will impact business operations.
Monthly or quarterly, schedule periodic budget reviews to stay on top of financial performance and make proactive adjustments. At the end of the year, reflect on what worked well and what didn’t to inform the budgeting process for the following year.
The information provided in this blog post is for general informational purposes only and is not intended as legal advice. Every business and financial situation is unique, and the strategies discussed may not be applicable to your specific circumstances.
For personalized guidance, please schedule a consultation appointment with a Principal at Bernstein Financial Services to help you determine your optimal planning strategies.