Budgeting
Why last year plus ten percent isn't a budget, why nobody can say what's driving the variances, and the monthly habit that turns a budget into a tool you actually use.
Most owner-led businesses do a budget. Few use it. It gets built in a rush before the new financial year, usually as last year's numbers plus ten percent, saved in a spreadsheet, and never opened again. By September nobody remembers what it said.
That's a shame, because a budget is the only way to know whether the year is going to plan while there's still time to change it.
1. Last year plus ten percent. Growing every line by the same amount ignores what actually drives the business: how many staff, sites, practitioners, jobs or customers you'll have, and when. A budget built that way can't explain itself, so when the year goes off track, it can't tell you why.
2. One annual number, not twelve monthly ones. A business with a quiet January and a busy May doesn't earn a twelfth of its revenue each month. If the budget is spread evenly, every month looks "over" or "under" for reasons that have nothing to do with performance, and people stop trusting the comparison.
3. Nobody reports against it. This is the big one. A budget only becomes useful when, each month, someone puts the actuals beside it and explains the difference. Without that, it's a document, not a tool.
Each month, once the books are closed:
A budget is set once and kept, so you can measure against it. A forecast changes as you learn more. Mixing the two is how budgets lose their meaning.
"Revenue is $40,000 under budget" isn't an answer. It's the start of a question. Most variances come down to one of four things, and a good monthly report says which:
Splitting a variance this way turns "we're behind" into something you can act on: "two practitioners started a month late, so volume is down for July and August only", or "our average price has slipped for three months running". The first fixes itself. The second needs a decision.
If your reports can't make that split, it's usually because the budget wasn't built from the drivers in the first place.
A useful budget starts with the few numbers that move everything else: headcount and start dates, prices, utilisation or chair occupancy, job volumes, new sites and when they open. Get those right and the P&L, balance sheet and cash follow. Get them wrong and no amount of percentage growth will fix it.
You can't compare against a budget until you trust the actuals. If last month's profit keeps changing, every variance is a guess too. That's why a real month-end comes first. Our free guide shows what that involves, step by step.
If you'd rather have it built for you: our Budget Starter (from $990) gives you a 12-month budget from your own actuals and drivers, loaded into Xero, and the Integrated Budget (from $3,000) adds the balance sheet, cash and a downside case. Or start with the free Health Check to see how your numbers stand today.
General information only, not tax, legal or financial product advice. Your registered tax or BAS agent handles tax and your activity statements.
The five steps of a real close, what proves each balance, the journals most often missed, and the ten-day calendar.
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