I love the beginning of a new year. There’s always so much to be excited and hopeful about. It’s a time of setting new goals and realignment. It’s a time to look forward.
Whilst most of my work is about helping businesses look into the future to see what financial and personal success is possible, some of it is about looking back as well.
Comparison is a great financial tool to use in your business. Both as a check to make sure that your business is on the right track, and to be able to make educated predictions about the future.
The process of comparison is important to make sure what you predicted would happen, actually did happen. It gives you the opportunity of reflection as well as to identify areas of your business that may need modification or tweaks to get you back on track towards your goals.
Comparison works best when it’s done regularly. Ideally it would be monthly at the minimum, to give you time to make any adjustments to your business model, but even quarterly or half yearly analysis is better than no analysis! So, go and grab your budget and put our action pants on to make sure that you’re on the right track!
JOIN MY 2020 BUDGET CHALLENGE HERE
Find your actual expenses and income for the period in review. If you use an accounting system, they are usually classified into broad groups. For example, Income may be broken down by product or service types, expenses could be stationery, technology, wages, travel. Make sure that the classifications that you’ve used for your budget match those of your actual income and expenses.
Enter your data into either your accounting system, Excel spreadsheet or system of choice!
3. Compare and Identify
Compare the actual results to those that you forecasted or budgeted for.
Highlight the variances, where the actual results are significantly different to your budget or forecast. The differences could be either favourable or unfavourable. The important thing here is to identify them so that you can see if you need to do something to bring it back in line with your forecast.
On a separate sheet of paper, or new sheet in your spreadsheet list all your identified variances. Now it’s time to put your detective hat on and find the reason(s) for the differences. The most common reasons that I see are a result of:
- Price difference: For example, a supplier has increased prices or you have run a sale and discounted prices
- Timing difference: For example, you thought your Easter sale was going to be in April, but it was actually in March
- Quantity difference: For example, you thought you were going to sell a certain amount, but you sold more or less
- Once offs: For example, a shipment of poor quality products, a project ended up being bigger or smaller than anticipated
5. Deep Dive
You’ve highlighted your variances and discovered the reasons for them, so what now? There’s no point in doing all this hard work if you’re not going to do anything with it!
For every variance, write down a plan of action.
For example, if a supplier has increased their prices, do you need to include yours? If a project took longer than anticipated, do you need to change the type of information that you collect to ensure that you can quote accurately?
Taking your deep dive one step further, diarise the completion of each of these steps in your calendar so that you become accountable to take action! The quicker that you do this, the faster you’ll get back on track!
If you’d like to start 2020 off on the right financial foot, join me in my 5 day challenge in the New Year. Together we will build a budget to make sure that you start the new decade off on the right foot. Sign up for the challenge here.