Guidelines
Use these guidelines when preparing your budgets, setting your key performance indicators (KPIs) and reviewing your profit and loss (P&L) report.
Getting Started with Budgetwhizz
Reporting in Budgetwhizz
Adding Budgets
A few things to keep in mind will help you get more meaningful information from your figures and make better-informed business decisions.
1. Creating your budget
Your budget is your financial plan. It sets out what you expect your business to earn and spend over a particular period. The more realistic your assumptions, the more useful your budget will be.
Use realistic income estimates.
Base your expected sales on historical results, confirmed contracts, current business activity and reasonable expectations. Be cautious about including sales that are uncertain or opportunities that haven’t yet materialised.
Include all your costs.
It’s easy to account for regular expenses and overlook less frequent ones. Remember to consider insurance renewals, professional fees, equipment, maintenance, subscriptions and other costs that may arise during the year.
Allow for changes throughout the year.
Sales and expenses rarely follow a perfectly straight line. Consider seasonality, quieter periods, price increases and changes in customer demand when preparing your figures.
Separate one-off costs from regular expenses.
A major equipment purchase or an unusual professional fee can affect your results significantly. Identify these costs clearly so you understand their impact on your overall budget.
Be consistent with VAT.
If your business is VAT-registered, make sure you treat VAT consistently and in accordance with your accounting setup. Recoverable VAT is generally excluded from income and expenses for P&L purposes, while non-recoverable VAT may form part of a cost. VAT treatment can differ for cash-flow planning.
Review your budget regularly.
Your original budget is a reference point, not a promise that everything will happen exactly as planned. Compare actual results with your budget and update your assumptions when circumstances change, while retaining the original budget for comparison where appropriate.
2. Setting your KPIs
Key performance indicators (KPIs) help you measure how your business is performing against the goals that matter to you. The aim is to focus on a manageable number of meaningful measures rather than track everything.
Choose KPIs that support your business goals.
If your priority is growth, revenue growth and new customer acquisition may be relevant. If profitability is the concern, gross profit margin, operating costs and net profit margin may be more useful.
Make sure each KPI is clearly defined.
Know exactly what is being measured, how it is calculated and which period it covers. For example, revenue growth could be measured monthly or annually, and the comparison period should be clear.
Set realistic targets.
Use historical performance, industry context where available and your business plans to establish targets. Targets should encourage improvement without relying on assumptions that are unlikely to be achieved.
Review trends, not just individual results.
One month’s performance may be affected by timing, seasonality or an unusual transaction. Look at results over several periods before deciding whether a pattern is emerging.
Focus on measures you can act on.
A KPI is most useful when it helps you decide what to do next. If a measure changes, consider what caused it and whether action is needed.
Avoid relying on a single KPI.
Growing revenue doesn’t necessarily mean growing profit. Similarly, a healthy profit margin doesn’t automatically mean you have enough cash to pay upcoming bills. Use a combination of measures to build a fuller picture.
3. Understanding your profit and loss (P&L) report
A P&L report summarises your income and expenses over a specified period and shows the resulting profit or loss. It helps you understand business performance, but the figures need to be interpreted in context.
Check the reporting period.
Make sure you’re reviewing the correct month, quarter or year. When comparing periods, use comparable dates and be mindful of seasonality.
Understand the difference between revenue and profit.
Revenue is the income generated by the business, not the amount it keeps. Costs must be deducted to determine the resulting profit.
Pay attention to your margins.
Gross profit shows what remains after the direct costs associated with delivering your goods or services. Net profit reflects the costs included in the report after the relevant expenses have been deducted. Understanding how these margins change can help you identify pricing or cost issues.
Check for unusual or missing entries.
An unexpected expense, a missing invoice or a transaction allocated to the wrong category can distort the results. Investigate significant differences rather than assuming every figure is correct.
Compare actual results with your budget.
Look at where income or expenses differ from expectations. Ask whether the difference is due to timing, a change in business activity, unexpected costs or an assumption that needs revisiting.
Remember that profit isn’t cash.
A P&L report doesn’t tell you the whole story about the money available in your bank account. Invoices may be unpaid, loan repayments may affect cash, and equipment purchases may be treated differently in the P&L and cash-flow records.
4. A few final checks
Before relying on your figures to make a decision, ask yourself:
- Are the figures complete and up to date?
- Am I comparing like with like?
- Are my assumptions realistic?
- Do I understand the reasons behind any significant differences?
- What action, if any, should I take based on what the figures tell me?
Budgeting, KPIs and P&L reporting are most valuable when used together. Your budget sets expectations, your KPIs help you monitor progress, and your P&L shows how your business has performed over a given period.
Reviewing all three regularly can help you identify issues earlier, understand what’s working and make more informed decisions about the future of your business.