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Business Blog No 18 – Budget Profit and Loss Monthly Phasing

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Last week, you finalised your Profit and Loss (P&L) forecast for the current year and budget for the next financial year.

This week, we will look at the phasing of the budget P&L by month so you can use your phased budget to compare actuals results each month.

Using your excel spreadsheet model from last week (Figure 1 below), add in another 13 columns representing each month of the new financial year and a total, refer Column G below.

There are a variety of ways of phasing your budgets. Obviously you want to select the method that best allocates budget revenue and costs in the most realistic expected pattern for each category of items in your P&L by month. Some entities plot historical values and mirror the percentage proportion across months in their new budget phasings. Some entities simply divide the full year budget by 12 and use those figures for each month. Some entities allocate across months based on working days by month. Others use seasonal adjustment factors to phase across months. Others use a hybrid version of all of the above.

I recommend that you keep it simple. You want your  budget phasing to be reasonably accurate, but it doesn’t have to be precise. Even if you over simplify the phasing, any monthly variations will just be timing variances as every month adds up to the full year totals no matter what method you adopt.

WORKING DAYS PHASING

I recommend using the working days allocation method. This method provides not only the simplicity you seek, but a level of accuracy that is reasonable if your average daily sales values are consistent across the year (and hence are not seasonal) and you incur costs in such a pattern too. Naturally if you are aware that you will generate revenue is a seasonal manner or you will incur certain costs in a differing pattern across the year, make the relevant adjustments to your phasings. An example of costs for which a working day allocation is not reasonable is if you are a manufacturer and you shut down annually to do annual preventative and planned maintenance generally over the Christmas and January period. In this instance, your Repairs and Maintenance (R&M) budget phasing will need to be adapted to reflect the fact that major R&M costs will be incurred when the business is actually closed.

I have simulated the phasing using the working day method as illustrated in the following model (Figure 1, Column G and Row 1). Note that I have assumed that the business is closed 4 weeks per year (spread across December/January and April Easter) for annual leave/shutdown and for 2 weeks of Public Holidays. This leaves the business open 46weeks of the year which equates to 230 working days.

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SUMMARY

Use this week to phase your final Profit and Loss Budget by month ready for the new financial year so you can start comparing and measuring actual results each month against your budget each month.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Are there any topics you would like me to cover in upcoming blogs? Are there any issues or ‘pain-points’ you would like to see covered?

Ross – Virtual CFO

Business Blog No 17 – Budget Profit and Loss Statement

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Firstly, congratulations for coming on this journey with me so far! This week, we pull everything we have done for your forecast and budget together to come up with a Profit and Loss (P&L) Forecast for the current financial year and P&L Budget for next financial year. Very exciting!

Using the information developed so far, and your excel spreadsheets, following is a schedule (Figure 1) that pulls it all together to give us a first look at your first cut P&L Forecast and Budget. Note, I have used most of the numbers used so far as illustrations, they are fictitious numbers and some have been altered for illustration purposes only.

Figure 1

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  • Column A lists out the P&L categories used in your workings so far.
  • Column B is the actual year-to-date April figures for each P&L category, plus some percentages for reference.
  • Column C is the forecast derived for the May and June months for each P&L category.
  • Column D is the current full year forecast for each P&L Category, plus some percentages (Column B plus C).
  • Column E is the budget movements in “Inflation/Price”, “Volume/Mix” and “Productivity” improvements for each P&L category you have determined.
  • Column F is the next financial year budget as computed by each P&L Category, and reflects the sum of column D plus the three sections of column E. Percentages are also illustrated for reference and comparison purposes.

Looking at all the information you have complied, you will have determined a Profit before Interest and Tax (PBIT) figure in Row 1. How does it look? Does it make sense? Is the year-to-date figure correct and does it match your actual numbers? Is the current year forecast reasonable given you are coming towards the end of the financial year? Do the ‘price’ and ‘volume’ figures look reasonable and does the ‘productivity’ total saving figure in Column E Row 1 agree with your Strategic Plan initiatives?

If you are happy with what you are seeing, you need to add a few more rows to the spreadsheet as noted below, Figure 1, Rows 1 to 5. Row 1 is the Profit Before Interest and Tax (PBIT) as per above.

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If you have borrowings, loans or a bank overdraft for your business, you will be paying interest to the applicable financial institution/s. Row 2 is where you show the interest expense you are forecasting and budgeting to pay. Subtracting the interest expense amount from your PBIT will give you Profit Before Tax (PBT), refer Row 3. Applying a standard tax rate of say 30%, you will determine your Tax Expense in Row 4.

Subtracting tax expense from PBT gives you Profit After Tax (PAT), Row 5. This is possibly the most important number you have! Is it positive? Does it look reasonable? Does the number give you the desired Return on Investment you identified in week 7? You should recall that you need to be making a return on your investment (ROI) to reflect the risk you are taking. If you are not achieving your target return on business investment, you need to have a plan to get you there, if not in this budget year, at least in the medium term.

If you are not making that required return on investment, what areas can you focus on to get to that required level of return? Can you aggressively budget more sales growth harder? Increase prices further? Do some cost cutting? Make further productivity improvements? Or a combination of all of the above? Is it something that needs to be done over a number of years?

SUMMARY

Use this week to pull together your first draft forecast and budget Profit and Loss (P&L) and look at where you are at insofar as Return on Investment (ROI) objectives. Review and adjust your forecast and budget accordingly to come to a final P&L forecast and budget and provide a sound foundation for business success.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we will look at phasing your final budget by month ready for the new financial year so you can start comparing actual results for each month against your budget.

Ross

Business Blog 16 – Budget – Selling and Administration Overheads

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Last week you completed your first category of budget overhead expenses: Production and Distribution Overheads.

This week, we move onto the second and final category of budget overhead expenses: Selling and Administration Overheads. Every business needs to sell to survive and every business will have administration costs to incur. So this overhead category will apply to all entities whether they are manufacturers, distributors, service entities or start-ups.

SELLING AND ADMINISTRATION OVERHEADS – EXISTING BUSINESSES

Selling Overheads include costs such as Sales and Customer Service personnel costs, Marketing costs, Mobile phones, Motor Vehicles, Travel and Entertainment, Advertising costs, Samples, Promotions and Website costs. Administration Overheads will include Accounting, Administration, IT and HR personnel costs, General management costs, IT Costs, Legal Fees, Stationery, Office Equipment depreciation etc. The process and concepts that follow are equally applicable to both types of overhead costs and to all entities that incur any of these types of costs. It basically mirrors the process you followed to develop your Production and Distribution Overheads previously.

Your accounting system should already be reporting the actual costs as separate line items so this is your starting point for your current year forecast and then budget. A simple spreadsheet will again be useful for preparing the forecast for the current financial year and budget for next financial year. Collect the year-to-date (YTD) actual costs by category. Let’s assume you have YTD actual costs for the 10months to April, refer Figure 1, Columns A and B below. Next you need to forecast the next 2months costs. A simple pro-rata using YTD Actuals can work if you have no other information to go on, refer Column C below. Adding these two numbers together gives you your current year full year forecast, refer Column D.

Next, add another 3 columns to your spreadsheet and put in ‘inflation’, ‘volume/mix’ and ‘productivity’ columns representing movements from your forecast to your budget figures (refer Figure 1 column E). ‘Inflation’ would reflect known EBA or payroll rate increases from year-to-year and inflation projections. The ‘Volume/Mix’ column would be any volume variations that will affect costs, eg product launch and marketing costs of new products, and other known variations such as depreciation increases through increased capital expenditure. The final column is the ‘productivity’ and cost saving initiatives you are budgeting for as reflected in your strategic plan.

Adding your current year forecast dollars to your ‘inflation’ increases, ‘volume/mix’ increases and ‘productivity’ savings (Figure 1, Column E) will give you a budget Selling and Administration Overhead budget for next year, refer Figure 1, Column F below.

As a point of reference, some companies have a target percentage-of-sales ratio they use to cover these Selling and Administration Overheads to ensure that these overheads stay in control.

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START-UPs

If you are a start-up, hopefully your research will have identified the overhead resources you will need so you can sell your products/services and run your business. Put some values around the resources required to derive a simple budget for these costs for the next financial year.

SUMMARY

Use this week to develop your Selling and Administration Overhead Budgets and continue building the budget picture to provide a sound foundation for business success.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we will pull together all the Profit and Loss forecast and budget data you have completed so far and add in some last pieces to come to your draft current year forecast and next year budget Profit and Loss statement.

Ross

Business Blog No 15 – Budget – Production and Distribution Overheads

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Last week you completed your cost of sales budget, and hence determined a key metric: budget gross margin. A key take away from last week was the need to ensure you budget to make a gross margin that will cover your budget overheads and make a sufficient budget profit.

This week, we move onto the first of those budget overhead categories: Production and Distribution Overheads. Note the topic this week will not be relevant to service entities, but it is relevant to entities that are product focussed either as manufacturers and/or resellers/distributors.

PRODUCTION AND DISTRIBUTION OVERHEADS – EXISTING BUSINESSES

Distribution Overheads will apply to both manufacturers and distribution/reseller entities.  Distribution Overheads include costs such as Warehouse Labour and Freight Outwards. Production Overheads will only apply to manufacturers and are the factory costs not already picked up in cost of sales (direct labour and variable overheads) and are relatively fixed. Major categories of Production Overhead costs include Production Supervision Labour, Stores Labour, Maintenance Labour, Repairs & Maintenance (R&M), Rent and Plant Depreciation.

The process and concepts that follow are equally applicable to both types of overhead costs and to all entities that incur any of these types of costs.

Your accounting system should already be reporting these costs as separate line items so this is your starting point for your current year forecast and then budget. A simple spreadsheet will be useful for preparing the forecast for the current financial year and budget for next financial year. Collect the year-to-date (YTD) actual costs by category. Let’s assume you have YTD actual costs for the 10months to April; refer Figure 1, Columns A and B below. Next you need to forecast the next 2months costs. A simple pro-rata using YTD Actuals can work if you have no other information to go on, refer Column C below. Adding these two numbers together gives you your current year full year forecast, refer Column D.

Next add another 3 columns to your spreadsheet and put in ‘inflation’, ‘volume/mix’ and ‘productivity’ columns representing movements from your forecast to your budget figures (refer Figure 1 column E). ‘Inflation’ would reflect known EBA or payroll rate increase from year-to-year and inflation projections. The ‘Volume/Mix’ column would be any volume variations that will affect costs. eg Waste, and other known variations such as depreciation increases through increased capital expenditure. The final column is the ‘productivity’ improvements you are budgeting for as reflected in your strategic plan.

Adding your current year forecast dollars to your ‘inflation’ increases, ‘volume/mix’ increases and ‘productivity’ savings (Figure 1, Column E) will give you a budget production overhead for next year, refer Figure 1, Column F below.

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START-UP’s

If you are a start-up, hopefully your research will have identified the overhead resources you will need to run your factory and/or distribute your product. Put some values around the resources required to derive a simple budget for these costs for the next financial year.

SUMMARY

Use this week to develop your Production and Distribution Budgets (as applicable) and continue building the budget picture to provide a sound foundation for business success.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we continue with Overhead Budgets focussing on Selling and Administration Overheads.

Ross

Business Blog 14 – Cost of Sales Budget Part 3 Variable Overheads and Gross Margin

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This week is the final part of a 3-part topic focussed on developing a Cost of Sales Budget for the next financial year, and so determine your gross margins.

The definition of variable overheads in a cost of sales context for both products (Cost of Goods Sold) and services (Cost of Services) is the overhead that varies directly with the volume of production of the product or service. The variable overhead costs include things such as energy, consumables and factory supplies. Note that this week’s topic is not relevant to import/distribution/reseller entities that don’t produce goods or services.

MANUFACTURER/SERVICE PROVIDER – IF YOU HAVE MACHINE OR LABOUR ROUTINGS

As with last week, if you have a computer system, or excel spreadsheets that you use for machine and/or labour routings by product/service showing how many hours it takes to produce the product/service across the various production work centres, you can use the budget hours as determined in the direct labour hours exercise last week as your starting point. You can then use the actual current year-to-date (YTD) hours and volumes and actual direct variable overheads YTD and pro-rata these overheads for the machine or labour hour and volume movements between current year forecasts and next year’s budget.  You then need to consider efficiency improvements or productivity savings you may have included as part of your strategic planning process and reflect those in your direct variable overhead budget also.

As with last week, you can then derive ‘budget overhead recovery rates’ for your work centres and ‘push’ them back into your machine/labour routes so as to build up budget variable overhead costs by product/service, refer Figure 1, column L.

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MANUFACTURER/SERVICE PROVIDER – IF YOU DON’T HAVE MACHINE OR LABOUR ROUTINGS

If you don’t have machine or labour routings, you are best to look at using the actual current year-to-date (YTD) volumes and actual direct variable overheads YTD as a starting point and pro-rata these overheads for the volume variations between current year forecasts and budgeted volumes for next year. Factor in rate and inflation increases and also reflect any productivity initiatives you have identified in your strategic planning process that you expect to generate savings in variable overheads.

START-UP MANUFACTURER/SERVICE PROVIDER

If you are a start-up, hopefully your research will have identified the direct variable overhead resources you will need to deliver your product/services based on your budgeted volumes. Put some values around the resources required to produce your product/service for the financial year.

GROSS MARGIN

Sales less Direct Materials less Direct Labour less Direct Variable Overheads = GROSS MARGIN

Gross Margin is a key measure of business performance and you should be targeting a gross margin percentage (Gross Margin dollars divided by Sales dollars) that will cover your fixed overheads and make an  profit at the appropriate levels; refer Figure 1, column M and N.

spreadsheet blog 14 no 2

Use this week to develop the final component of your Cost of Sales budget, your Direct Variable Overheads Budget for the next financial year, and thus your Gross Margin, to provide a sound foundation for business success.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we move onto the Overhead Budgets starting with Production, Freight and Distribution Overheads.

Ross

Business Blog No. 13 – Cost of Sales Budget Part 2 – Direct Labour

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This week is the second part of a 3-part topic focussed on developing a Cost of Sales Budget for the next financial year. Last week we looked at Cost of Sales – Materials, now the objective is to determine the Cost of Sales – Direct Labour for your budgeted sales.

The definition of direct labour in a cost of sales context for both products (Cost of Goods Sold) and services (Cost of Services) is the labour that ‘touches’ or ‘adds value’ to the product or service produced and which varies directly with the volume of production of the product or service . It is effectively the variable labour required to produce a product or service, but excludes supervision and support departments. Note that this week’s topic is not relevant to import/distribution/reseller entities that don’t produce goods or services.

The labour cost components to be included in your direct labour costs include not only the wage/salary of the direct employee but also overtime, shift allowances and bonuses etc, plus oncosts such as workcover, payroll tax, superannuation and leave provisions. You also need to ensure that you reflect EBA (Enterprise Bargaining Agreement) or budget wage rate increases in your budget dollars.

Calculating how many direct labour personnel headcount, and hence dollars, are to be included in your direct labour budget is the next task.

MANUFACTURER/SERVICE PROVIDER – IF YOU HAVE LABOUR ROUTINGS BY PRODUCT/SERVICE

If you have a computer system, or excel spreadsheets that you use for labour routings by product/service showing how many hours it takes to setup and produce the product/service across the various production work centres, you can extrapolate these hours by the volumes of sales budget to come up with budgeted productive direct labour hours. This can then be converted back to labour heads and hence direct labour hours. Don’t forget to factor in non-productive down-time and vacations.

You then need to consider efficiency improvements you may have included as part of your strategic planning process and reflect those in your direct labour budget also.

Once the heads are determined, you need to determine the budget cost of the direct labour personnel. Multiply your budgeted direct labour headcount by the annual cost of each direct labour head (including oncosts noted above). Note that you can then derive ‘budget labour recovery rates’ for your work centres and ‘push’ back into your labour routes so as to build up budget direct labour costs by product/service, refer Figure 1, column K.

spreadsheet blog 13

 

MANUFACTURER/SERVICE PROVIDER – IF YOU DON’T HAVE LABOUR ROUTINGS

If don’t have a labour routing system, you are best to look at using the actual current year-to-date (YTD) volumes and actual direct labour YTD as a starting point and pro-rata direct labour costs for the volume movements between current year forecasts and budgeted volumes for next year. Factor in wage/inflation increases but also reflect any productivity initiatives you have identified in your strategic planning process to give you a direct labour budget.

START-UP MANUFACTURER/SERVICE PROVIDER

If you are a start-up, hopefully your research will have identified the direct labour resources you will need to deliver your product/services based on your budgeted volumes. Put some values around the headcount requirement for direct labour to produce your product/service for the financial year by applying annual labour cost including overtime (including premium), shift allowances, bonuses, superannuation, payroll tax and workcover.

Use this week to develop the second component of your Cost of Sales budget, your Direct Labour Budget for the next financial year, to provide a sound foundation for business success.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we move to the third part of the Cost of Sales budget, Direct Variable Expenses, after which you will be able calculate another key metric: Gross Margin.

Ross

Business Blog No. 12 – Cost of Sales Budget Part 1 – Materials

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This week is the first part of a 3-part topic focussed on developing a Cost of Sales Budget for the next financial year.

Last week concluded with the creation of your business’ ‘final draft’ Sales Budget. Now the objective is to determine the Cost of Sales budget for these sales, starting with Materials. If you are a services business, the information that follows won’t be relevant to you. Tune into next week’s blog for more appropriate information for you if you don’t deal in products.

The Material component of Cost of Sales includes both ‘Bills of Materials’ or ‘Recipe’ for your manufactured product, as well as the Cost of Sales for Product Purchased for Resale by a distribution entity.

The first step is to determine your budgeted raw material unit costs and budgeted purchase product unit costs from your suppliers for the next financial year. Try to lock in pricing from your suppliers for the next year or at least give indicative pricing, as well as an inflation allowance for this purpose.

If you are importing raw materials and/or finished goods, you will need to make some assumptions about exchange rates. Speak to your business banker and ask if they can provide you with the banks forecast exchange rates. Use these to calculate your import purchase unit costs, including duty and shipping if applicable, back into Australian dollars.

MANUFACTURER – IF YOU HAVE BILLS OF MATERIALS OR RECIPE

If you have Bills of Materials or Recipes for your manufactured product, you will have material requirements to make a unit of each product. Multiplying the material requirements for a unit of product by the budget raw material costs will give you budget material cost per unit by each finished item. Don’t forget to include scrap allowance or waste allowance.

Multiplying your budgeted sales volumes and your budget material cost per unit will give you your first look materials budget. Hopefully you can break down the material budget by your sales categories.

Using the Sales budget spreadsheet example that we have used in previous blogs, add in three more columns (see Figure 1, Column I below). The first column is your base materials budget as has just been determined.

Refer to your Strategic Plan; did you come up with some productivity improvement targets or actions around your material costs? Maybe you are changing suppliers, or reducing scrap rates due to Six Sigma/lean initiatives? Maybe you are changing you recipes/bills of materials to substitute a different material mix? There should be some continuous improvement targets for materials and these should be reflected in your budget. Refer to the second column within Column I for examples.

MANUFACTURER – IF YOU DON’T HAVE BILLS OF MATERIALS OR RECIPES OR YOU ARE A START-UP

If you don’t have the ‘Bills of Materials’ (BoM’s) or Recipes at a manufactured product level, you can always use a listing of your material purchases year to date and adjust those values for changes in your volumes and factor in price changes at a macro level.  You would still want to reflect productivity initiatives that have come out of your strategic planning process and hopefully you can at least arbitrarily attach the budget costs to Sales categories; see figure 1 column I below for an example.

If you are a start-up manufacturer, hopefully you will have researched your material requirements and recipes and determined the type and quantity of materials you will need. From your research, you should have some indicative prices from suppliers and therefore be able to estimate a rough materials budget.

DISTRIBUTOR/RESELLER

If you are an import/distributor or reseller you will need to come up with budget product purchases reflecting your sales budget. The process for setting unit costs for the coming year is simpler than for a manufacturer but the logic is still the same. By multiplying your budgeted sales volumes by your Purchase product budgeted unit costs, plus any duty or freight etc that may be applicable. you will have your first look materials budget. Try to break down the material budget by your sales categories.

The third column of Column I in Figure 1 below is the sum of base material costs less productivity material improvements.

Sales less material gives you the metric known as Added Value. Add a further column to your spreadsheet to reflect Added Value $ and % (Refer Figure 1, Column J).

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Use this week to develop the first component of your Cost of Sales budget; your Materials Budget for the next financial year to provide a sound foundation for business success.

As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.

Next week we move to our second part of Cost of Sales budget, direct labour.

Ross

Business Blog No. 11- Strat Planning – Sales Budget Part 2

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This week is the second part of a 2-part topic focussed on developing a Sales Budget for the next financial year.

Last week we put together a full year sales forecast for the current financial year and then a first cut sales budget using the forecast as a starting point and factoring in base growth and price assumptions.

Now the objective is to extend that first cut sales budget into something you might call a final draft Sales Budget. As always, if you need some help or guidance on the material herein, don’t hesitate to call me on (03) 9554-3128.

You might recall we developed a Sales and Marketing Strategy a few weeks back. Now it is time to feed the financial targets developed from the initiatives contained in your Sales and Marketing strategy into your Sales Budget.

At the very least, you should be targeting growth greater than the market (so you gain market share) and budget for price increases higher than inflation. Remember you are more a ‘price-setter’ than a ‘price-taker’ because you are now differentiating your business and marketing yourselves as providing value beyond price.

Extending the spreadsheet we created last week (see Figure 1 below), let’s add three more columns represented by Column F. In these columns enter the increase in volume and price beyond the industry base due to the influence of your Sales and Marketing Strategy. Multiply the new volumes by the new price to create a ‘second-look’ Sales Budget.

Beyond the broad market share and price effect assumptions of your Strategic Plan, you should also have identified additional new innovative products/services or new markets or targeted new customers. These need to be added into your sales budget, volumes and prices, above and beyond our ‘second look’ Sales Budget. Let’s add some new rows to the spreadsheet under column A for each of these initiatives and attach budget volumes, budget prices and budget sales dollars for each. Include these items in column G of the spreadsheet (refer Figure 1 below).

As an aside, are you budgeting any export sales? If so, you will need to make some assumptions about exchange rates. Speak to your business banker and ask if they can provide you with the banks forecast exchange rates. Use these to calculate your export sales budget back into Australian dollars.

Assuming you have captured and added in all the initiatives from your Sales and Marketing strategy, adding column F to column G of the spreadsheet gives you your ‘final draft’ Sales Budget, represented by column H. It is not a ‘final’ Sales Budget until the full budget is complete but you now have your starting point. A Sales Budget is the key part of a business’ overall budget and is the first stage in the budgeting process.

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Use this week to further develop your Sales Budget from ‘first-look’ to ‘final draft’ for the next financial year using your Sales and Marketing Strategy as a pillar of the budget and to provide a sound foundation for business success.

Come and visit us at our stall at the Smart Manufacturing 16 Expo on Tuesday May 17.

http://www.smartmanufacturing.com.au/

Smart Manufacturing logo may 2016

Business Blog No. 10 – Strat Planning – Sales Budget Part 1

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This week is the first of a 2-part topic focussed on developing a Sales Budget for the next financial year.

This topic can be a bit dry and challenging, but I ask you to stay with me and take the time digest the materials in this week’s newsletter. If you need some help with any of the materials don’t hesitate to call me on (03) 9554-3128.

Existing Businesses – Current Year Sales Forecast

The first step in developing next year’s Sales Budget is to put together a Sales Forecast for the current financial year. A simple spreadsheet is a handy tool for this purpose (see Figure 1 below).

If yours is an existing business, do you know your current year-to-date (YTD) sales volumes by product or service or customer category and the actual total sales dollars YTD for each? Your accounting system should have this information. Put this YTD information in columns in a spreadsheet (refer Figure 1 columns A and B as an example), and compute average selling price by dividing sales dollars by volume.

Next add another 3 columns to your spreadsheet and put in the forecast sales volume, unit price and forecast sales dollars for the remainder of the current financial year (refer Figure 1 column C).

Adding your actual YTD units and YTD dollars plus your remaining period forecast units and dollars gives you a full year sales forecast by category. Compute your average unit price for the full year (refer Figure 1 column D).

Existing Businesses – Next Year Sales Budget

Now you have your current full year Sales Forecast, add some additional column on your spreadsheet for your 2016/17 Sales Budget (volume, price, budget sales $ columns, refer Figure 1 column E). Next make some assumptions about economic growth in your industry (say 2.5% as an example). To keep your existing market share, you will need to grow volumes by at least that amount. Increase your forecast volumes by the assumed growth % to come to a first-cut Sales Budget Volumes by product/service or customer.

The next part of the equation is Price. Make an assumption about inflation in your industry for the next 12months (say 2.5%). If you don’t recover inflation increases, your sales dollars won’t keep up in real terms. Multiply the forecast average prices by inflation to come up with new Budget Sales prices by product/service/customer.

Multiplying your Sales Budget volumes by your Sales Budget unit prices, you get your first-cut 2016/17 Budget Sales dollars by product/service or customer.

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New Businesses

If your business is just starting out, your approach by necessity will be different. Have you got any sales data so far, or do you have a feel for any sales you may make before the end of this financial year? Using your market research and Sales and Marketing Strategy, start by estimating how many customers by week by month you think you will get and how many sales orders you expect to fill by quantity for each of these target customers. Organise this information by product or service for each customer. Using your selling price assumptions, you can come up with projected sales dollars by product/service offering or customer, in other words a Sales Budget. It can be quite difficult to estimate these figures with confidence, but the best thing to do is make a start. As the saying goes, “the greatest journeys start with that first step”.

Use this week to develop your ‘first-look’ Sales Budget for the next financial year using a full year Sales Forecast for the current financial year as a starting point. Next week we will expand on this draft Sales Budget to get to a final draft Sales Budget to provide a sound foundation for business success.

Come and visit us at our stall at the Smart Manufacturing 16 Expo on Tuesday May 17.

http://www.smartmanufacturing.com.au/

Smart Manufacturing logo may 2016

Business Blog No. 9 – Sales and Marketing Strategy

Business Blog No. 9 – Strategic Planning – Sales and Marketing Part 2

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This is the second of a 2-part focus on your Sales and Marketing Strategy.

Last week we looked at your SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis and identified your USP (Unique Selling Proposition). Now it is time to share your USP with your potential customers. After all, there is no point having a great USP if nobody knows about it. Remember the old saying “If you build a better mousetrap, the world will beat a path to your door.” Well that only happens if the world knows about your better mousetrap!

So now it is time to work on your Sales and Marketing strategy. Reflect on your SWOT analysis and USP. With your team, brainstorm who is your ‘ideal’ target customer. What characteristics does your ‘ideal’ target customer have? What industry and market segment are they in? Where are they located? Prioritise those target customers that give you the biggest scope for the most success. Then, most importantly, research their buying process and determine how you can facilitate and influence their process by building awareness of your USP through your Marketing Strategy.

Next, brainstorm questions like: what form will your Marketing Strategy take to create awareness of your USP to your prioritised ideal target customer? Will it be through Advertising? Or Promotions? Or Word Of Mouth? Or Networking Events? Or an Online Strategy? Or Trade Shows? Or Industry Events? Or Cold Calling? Or Public Relations? Or a combination of some or all of the above? Have you got research about what works best from past Marketing plans? If your business is new, try a few things out to see what works best before committing to a specific plan of attack. What do your competitors do and can you differentiate yourselves by doing something different in terms of marketing activity?

Think about the resources you have available and allocated to your marketing activities and decide on the marketing strategy that you think will give you the  biggest return on your investment (remember you are in business to make money first and foremost, not to get your head on the TV)!

Summarise your Marketing Plan. Allocate Budgets to each part of the plan. Ensure enough resources are allocated and that accountabilities and deadline dates are assigned to each action. Map out a review process so you can keep track of your actual results and performance compared to your plan.

So this week, work with your team, to brainstorm your target customers and the associated Marketing Plan to provide a sound foundation for business success.

Come and visit us at our stall at the Smart Manufacturing 16 Expo on May 17.

http://www.smartmanufacturing.com.au/

Smart Manufacturing logo may 2016