Article by Simon Lenthen, Business Advisor, Western Sydney Business Centre
Financial reports are an integral part of any business plan. Without them, the plan would only be a collection of esoteric goals that are hard to measure. For example, the goal of being a leader in the market needs financial depth in order to determine the point when a business becomes a leader. There may be some non-financial measures, but a financial report says a lot about how the company is performing, and if the company is performing to expectation. It’s especially important for businesses to develop estimates of how they are likely to perform. This is easy if a business has been trading for more than two years, but if you are only just starting out, how do you get the information? How can you make your budget believable?
If you’re buying a business, you can ask the owners to provide you with two – three years’ worth of financial data and then identify the trends, and interpret the numbers they provided. Use the results of your analysis to build your estimates. Don’t forgot to adjust your estimates to suit market conditions.
If you’re about to enter into your first year of operations, you may believe that you have no past experience to rely on, but that isn’t the case. There are two sources of information that you can access that will help you gain an expectation of how your business may behave in the market. And these sources are reliable, accessible and, even better, usually free.
The first place to go is The Australian Taxation Office. Yes, the organisation that collects for the government, gives back by providing industry benchmarks. Clicking on this link, takes you to the landing page for the benchmarks. It contains plenty of information about how the benchmarks are calculated and how to use them. Then click on the A-Z link and find your industry. The benchmark provides a range of values which you can then use to base estimates of expense and revenue behaviour in the year to come. Read the performance benchmark section to see which benchmark may be most appropriate for you and then apply them to your budgets.
The second place to go is the Western Sydney Business Centre. By arrangement with NSW Small Business Connect, we have access to a wide range of industry reports and their related benchmarks. Our skilled advisers can help you apply the benchmarks to your budget and then adjust for forecasted conditions of the market. We can provide you with a workable, realistic and believable budget.
We can even help older businesses with their budget preparation and review. We can compare your actual performance to your budgeted performance in order to properly assess your business and fine tune your strategies to maximise your financial outcomes.