Visual AidsWhat's the best way to present your projected income and expenses? Our Financial Management Expert shows you how.
Q:How do I project my income and expenses? Can I presentthem in a graphic form?
A:First you take a crystal ball.no, just kidding!Projecting income and expenses is part science, and part fortunetelling. The more data you have from past years, the easier it isto make projections. But much of projecting, or budgeting, is aguess.
Do you have a computerized accounting program? If not, get one!I recommend MYOB or Quick Books Pro. Use the budgetingfunction-look in the "Chart of Accounts" menu-to recordyour numbers and generate the reports.
When you create a budget:
- Remember to put in the owner's salary!How much doyou want? Do you want health insurance? Retirement for you and youremployees? Budget it in. Budget in all the expenses necessary toattract and compensate the best people-including you.
- Be sure to include all the costs of doing business.Pullout the financial statements you have from past years. Go down yourexpenses line by line and make your best guess at what thisyear's expenses will be for those categories. Adjust asnecessary. Are you going to spend more on a new advertisingcampaign? How about different uniforms? Is a new truck in yourfuture?
- Use those costs to create a selling price.Look at yourtotal expenses. You're going to need to make that much in salesto cover the costs. Inflate that number to create your desiredprofit. Then figure outhowyou're going to make thatmuch in sales. The key is your selling price.
- Most important, when you project sales, don't use the"going rate" for similar goods and services in yourmarket.Most small businesses aren't profitable. Don'tblindly follow their lead. Figure out what you must charge to coveryour costs. I wrote a cool book calledHow Much Should ICharge?(MaxRohr Inc.) It takes you step by step through thebudgeting process and helps you create a selling price that willmake you money. Isn't that the idea?
Be sure to make notes to yourself as you develop yourprojections. In the future, when you're comparing actual datato your budgeted figures, and you may wonder why you budgeted whatyou did. The notes will jog your memory.
- Create several versions of your budget-perfect world,worst-case scenario and in-the-middle.Then pick your sellingprice. I suspect your price will be more than the going rate.Remember, you're in business to make money.
- Learn how to sell.If you're going to charge more,you're going to have to be better, cleaner, faster-whatever.You'll have to work on your sales and marketing skills. Becreative with how you bundle your goods and services. Be different.Make the going rate irrelevant. Take heart-it's the marketer,not the market, who sets prices.
- Then rock and roll.As you accrue actual sales andexpenses, record everything in your accounting program. Run thefinancial reports-at least once a week-and match actual expensesand income to your budgeted figures.
- Certainly you can do this in graph form.Most accountingprograms will link to Excel or Lotus. These popular spreadsheetprograms are capable of presenting your financial data in graphform. Export the data to your spreadsheet program. Open the programand then open the exported file. Follow the Wizard instructions.Then use the Chart Wizard feature to format the graph. This iseasier than it sounds-the programs will guide you through theprocess.
I love graphs! I'm a bit dyslexic, and I have a hard timelooking at columns of tiny numbers. Graphs help make the numbersand the financial relationships much easier to read. When it comesto sales, up is good, down is bad. With a graph, you can make theexpenses red and sales blue, and present the data side by side.Cool, huh?
| LearnMore | ||
|
||
Author Ellen Rohr nearly starved in her family's smallcontracting business-until she learned how to manage money."Do what you love, certainly," she says, "but themoney won't just take care of itself." Ellen's priceycollege education didn't prepare her for real-world business."Financial business basics aren't that difficult.butwhere do you learn them? Unfortunately, business literacy isn'ttaught in school. I teach the basics and take the mystery out ofmaking money." Ellen's mission as an author, columnist andseminar leader is to help people make a living doing what theylove.
The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.
