Just recently I have been working on my own Management Accounts.
At this point I have a confession to make – I spend much more time worrying about my clients’ businesses than my own. Just like a cobbler’s child (who never has serviceable footwear), my own Management Accounts are always the lowest priority. To be fair, I do have a much less complicated business than any of my clients but that’s no excuse.
However, I decided this year I should get myself organised well in advance of the final deadline in January and so I have completed my own business accounts.
My year started in April 2013. I had a really quiet start to the year, which was great timing because it made having time off over the summer quite easy to organise, but since September I have been working 4 days per week instead of 3 and I have been pretty busy.
I was surprised to see that my total revenue for last year was slightly higher than in the previous year. On closer inspection I can see that the reason I was surprised is that my “take home” profit was slightly lower than the previous year – in short I spent more on business expenses along the way. My revenue went up 6% but my expenses went up by 54%!
I can explain this; in order to grow my business I am investing in it, but at the same time I need to control my costs in future. I don’t want my profit margin to drop again this year.
So I have taken a shot of my own advice. I’ve got my business plan (see earlier posts) so I know what I need to achieve this year and how I plan to achieve it.
Next I needed to set myself a quarterly allowance for how much I can spend. With my clients I look at monthly budgeting, but as my business is smaller quarterly is fine. This requires some work; things like travelling costs vary – more work typically results in more driving to see clients, but other costs like my CIMA registration and my insurance are fixed regardless of the amount of work I take on.Now that I have my budget written down I can see that if I hit my targets (and I will be working 5 days per week instead of 4) and control my costs I will be able to earn more even though my expenses are forecast to increase again. Controlling costs could be as simple as trying to spend as little as possible, but I don’t think that is a realistic option for a growing business – sometimes you need to invest in future possibilities.
From my budget I can also see roughly how much I need to set aside to pay my taxes, so I should be able to avoid any nasty surprises in the future.
I always think the biggest benefit of having a budget is that it allows one to see whether the early months’ trading is on target. If I set out thinking that everything will be rosy and can’t see if progress is good enough along the way I might be fooled into thinking things are great just because I’m busy.
With the benefit of a budget I can (and did) stop, look at the first quarter’s results and see if I’m on track or if I need to make some changes before its too late (FYI – things are OK, thanks for asking!).
I often find that when a business doesn’t make the profit that was expected the tendency is to blame a problem late in the year. However if you look at the figures in a little more detail it is usually clear that although there was a last minute problem the poor results are due to consistently lower than expected margins throughout the year which left no room for manoeuvre.
With this in mind I am going to keep up to date with my own accounts throughout this year and fingers crossed I can keep to the plan.