Budget Planning

Explanation

Profit Navigator simplifies budget creation using intelligent prediction based on your company's momentum, past performance, and future goals. Using our Budget Planning Momentum suggestions and budget builder, budgets can be as simple as 2 clicks or as detailed and thorough as setting your own month to month Sales, Costs of Goods and Total Expenses needed to support your complex business needs.

Instructions

Simplified Relational Budget

To create your simplified relational budget make sure that you have at least 3 years of financial history loaded in your Monthly Data Entry area. If you don't have 3 years of financial history you should use a Custom Budget which we will discuss later.

After providing your financial history, you can start using the Budget Planning tool. In the first section of Budget Planning select the current year as your Planning Year (or next year if you are planning for next year's budget), and select Simplified in the Select Budget Type section. Remember that any yellow colored box is a box you can alter.

Once you have configured your budget by selecting the year and budget type, your simplified month to month budget will be displayed. You will also see a running cumulative total for each of the previous values as well as an end of year prediction and a percentage of Sales for each of the other values.

By default the Simplified Relational Budget section is minimized. Click on the eyeball in the left side of the header to open the section.

Below your monthly simplified budget is the summary view for your budget. This section will show up to 3 years of your summarized financial data: the current year and prior two years. When viewing or modifying your current year's budget you will also be presented with a break-even budget, your prior year's budget, your current year's budget (reflected by the title Working Budget, next year's budget and your budget variance over the prior year).

The next section is where our intelligent budget planning system provides recommended momentum based budget selections - Budget Planning Momentum Suggestions. This section provides 3 options, Last Year, 2 Year Avg. and 3 Year Avg.. Last year will recommend a budget based on your performance between last year and two years ago, this is why at a minimum you need 2 years of financial data loaded not including the current year. The two year average will recommend a budget based on your performance between last year, the previous year and 3 years prior. The 3 year average will recommend a budget base on your performance between last year, previous year, 3 years and 4 years prior. Select one of the recommended momentum based budgets to start configuring your budget.

Below the Budget Planning Momentum Suggestions section is the simplified budget customizer. If you are happy with the budget selected, all you need to do at this point is click the Set to Working Budget button under the Simple Budget Momentum section.

This is the minimum required to setup your Simplified Relational Budget. However, we also provide 3 testing budget sections that you can use to customize your simplified budget.

Testing Budgets

If your business has seen losses or you feel that you can push your business growth faster than the momentum prediction, you can use one of the 3 testing budgets to set your own customized targets. Simply provide the end-of-year total of Sales, a Cost of Goods percent (this is the ratio of Cost of Goods to Sales), and your expected end-of-year Total Expenses. Our budget calculator will do the rest of the work. When you are happy with your customized budget simply click the Set to Working Budget button below the Simple Testing Budget you want to use. We provide 3 testing budgets so you can quickly see and set a budget that works for you.

If you feel that your business should be more conservative this year, or you feel you should be more aggressive, you can set - for example - Simple Testing Budget 1 to a conservative budget; Simple Testing Budget 2 to a middle-of-the road budget and Simple Testing Budget 3 to an aggressive budget. At any time throughout the year you can change your budget to use one of the 4 simplified budgets - our intelligent simplified momentum budget or one of the 3 customized testing budgets.

If for example, you chose a particularly aggressive budget and later in the year find that some difficulty out of your control is preventing you from hitting your budget, you can shift to a less aggressive budget. However, once you have made a decision on your budget for the year you should generally keep that budget and try to hit your performance metrics. As long as you are outperforming your prior year, your business will be growing. Keep that in mind and don't be discouraged if you don't hit every metric every time.

Some businesses may not have enough financial history for our intelligent simplified budget planner to provide a recommendation, however you can still use one of the 3 Simple Testing Budget sections to provide your own simplified budget if you are unsure of how to set a custom budget for the year. If you have at least one year of financial history (Jan-Dec of the prior year), you can use the Simplified Relational Budget. If however you haven't any financial history, you should use the Custom Budget. You can also choose to use the Custom Budget at any time.

Custom Budget

The details of deriving a custom budget is too complex and will vary for each business to offer simple instructions here. Talk to your financial advisor to determine the best budget for your business. You will need at least 12 monthly values for Sales, but for a fully custom budget you will also need 12 monthly values for Cost of Goods and Total Expenses.

To get started set your Budget Type to Custom. If you are only providing 12 months of Sales, set COGS Input Method to % Calculation and TE Input Method to Total ÷ 12 Months. If you wish to provide month-to-month values for either of Costs of Goods or Total Expenses set the input methods of those to Monthly Entry.

For Cost of Goods % Calculation, enter the expected percentage of Cost of Goods to Sales in the section titled COGS %. This will calculate your monthly Cost of Goods as a percentage of your sales. If you chose to manually set your Cost of Goods over 12 months, this will have no effect.

For TE Total ÷ 12 Months, enter the total end-of-year expected expenses. This will calculate your monthly Total Expenses by simply dividing the yearly total by 12 months. If you chose to manually set your Total Expenses, this will have no effect.

Enter each month's total Sales and if necessary each month's Cost of Goods and Total Expenses. Because each business has it's own personality, you should speak with your financial advisor to determine the best budget for your business.

For Advanced Learners

Every business needs a roadmap, or plan, to keep it heading in the right direction. Budgeting is often an area that is overlooked by individuals and businesses alike. Often when one does think about budgeting, budgets are simple, created each month to account for basic expenses. To grow a business you need a plan that gives you the motivation to succeed, and a way to measure your success. You need a roadmap with indicators along the way, not just at the end of the month, to remind you of what you've accomplished and where you are going.

Once your budget is complete, you will have a road map and testable metrics to guide your business decisions throughout the year. Your budget will drive your company Success Matrix, Preset GAAP KPIs, graphs and charts within the Leadership section and even your Strategic Planning budgets. Setting your budget and committing to that budget is the most important aspect of guiding and informing your business strategy.