Q: How do I project my income and expenses? Can I present them in a graphic form?
A: First you take a crystal ball.no, just kidding! Projecting income and expenses is part science, and part fortune telling. The more data you have from past years, the easier it is to make projections. But much of projecting, or budgeting, is a guess.
Do you have a computerized accounting program? If not, get one! I recommend MYOB or Quick Books Pro. Use the budgeting function-look in the "Chart of Accounts" menu-to record your numbers and generate the reports.
When you create a budget:
- Remember to put in the owner's salary! How much do you want? Do you want health insurance? Retirement for you and your employees? Budget it in. Budget in all the expenses necessary to attract and compensate the best people-including you.
- Be sure to include all the costs of doing business. Pull out the financial statements you have from past years. Go down your expenses line by line and make your best guess at what this year's expenses will be for those categories. Adjust as necessary. Are you going to spend more on a new advertising campaign? How about different uniforms? Is a new truck in your future?
- Use those costs to create a selling price. Look at your total expenses. You're going to need to make that much in sales to cover the costs. Inflate that number to create your desired profit. Then figure out how you're going to make that much in sales. The key is your selling price.
- Most important, when you project sales, don't use the "going rate" for similar goods and services in your market. Most small businesses aren't profitable. Don't blindly follow their lead. Figure out what you must charge to cover your costs. I wrote a cool book called How Much Should I Charge? (MaxRohr Inc.) It takes you step by step through the budgeting process and helps you create a selling price that will make you money. Isn't that the idea?
Be sure to make notes to yourself as you develop your projections. In the future, when you're comparing actual data to your budgeted figures, and you may wonder why you budgeted what you did. The notes will jog your memory.
- Create several versions of your budget-perfect world, worst-case scenario and in-the-middle. Then pick your selling price. I suspect your price will be more than the going rate. Remember, you're in business to make money.
- Learn how to sell. If you're going to charge more, you're going to have to be better, cleaner, faster-whatever. You'll have to work on your sales and marketing skills. Be creative with how you bundle your goods and services. Be different. Make the going rate irrelevant. Take heart-it's the marketer, not the market, who sets prices.
- Then rock and roll. As you accrue actual sales and expenses, record everything in your accounting program. Run the financial reports-at least once a week-and match actual expenses and income to your budgeted figures.
- Certainly you can do this in graph form. Most accounting programs will link to Excel or Lotus. These popular spreadsheet programs are capable of presenting your financial data in graph form. Export the data to your spreadsheet program. Open the program and then open the exported file. Follow the Wizard instructions. Then use the Chart Wizard feature to format the graph. This is easier than it sounds-the programs will guide you through the process.
I love graphs! I'm a bit dyslexic, and I have a hard time looking at columns of tiny numbers. Graphs help make the numbers and the financial relationships much easier to read. When it comes to sales, up is good, down is bad. With a graph, you can make the expenses red and sales blue, and present the data side by side. Cool, huh?
Author Ellen Rohr nearly starved in her family's small contracting business-until she learned how to manage money. "Do what you love, certainly," she says, "but the money won't just take care of itself." Ellen's pricey college education didn't prepare her for real-world business. "Financial business basics aren't that difficult.but where do you learn them? Unfortunately, business literacy isn't taught in school. I teach the basics and take the mystery out of making money." Ellen's mission as an author, columnist and seminar leader is to help people make a living doing what they love.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.