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Budget 101

As a business leader, you manage:-People-Planning-Problems(not always in that order!)

Budgeting is part of planning.

Failing to Planequals

Planning to Fail

Typical budget is month-to-month for 1 year

AND quarterly long term

(3 years)

Two basic budget elements:

- Income (sales)- Expense (rent, salaries, taxes)

Income is based on sales.

If you are in a department that does not generate revenue, you are in a cost center.

Expenses can be:

- Fixed (rent)- Variable (travel)

Expenses are grouped as:

-Cost of Goods (COGS)

-Operating Expense (OpEx)

-Capital Expense (CapEx)

COGS is the expenses incurred in the manufacture of a product. This includes direct labor, materials and overhead.

OpEx is on-going cost for running a business.- Advertising- Telephone- Salaries-Taxes- Insurance- Depreciation

CapEx is cost to buy fixed assets or to add to value of an existing fixed asset. Assets typically in use for at least one year and not for resale.- Computers- Vehicles- Test Equipment

Create budget showing existing/projected sales and expenses.

KNOW your budget and review it monthly.

Monitor OpEx CLOSELY.

If revenue is decreasing, you must decrease expenses at a faster rate.

Compare the growth of your income to growth of your expenses monthly.

0

750

1500

2250

3000

Income Expense

0

500

1000

1500

2000

Income Expense

What do your

numberslook like?

Review your budget with your team as appropriate.

Ask them for ideas and help in reducing expenses.

Meet with your Finance rep or

accountant regularly.

Know your numbers.

Watch Revenue & OpEx.

Manage expenses AGGRESSIVELY.