Receivables Financing - Part 3 Three of our series on Budgeting.
In this entry we will focus on what you should use in your budget.
Gross Revenue
In composing a budget start with the big picture. For our receivables financing firm that means starting with top line revenue, sales. Since all of your assets and liabilities will be used to support your estimated sales this is a great place to start.
The best way to estimate sales for the next twelve months is to look at the same period of time during the past few years. Once you know how the company performed over the past few years the next step is take a look at the macro level economic environment your business operates in. Is the government doing things that can affect your business? Are there new regulations in your industry?
After the macro level take a look at what your competitors are doing and how well you are positioned for the year to come. Are your competitors leaving a certain area of your business that presents an opportunity for you? Do you have a new product that is coming to market? You can get great information from your sales people and your vendors. You should also try and make some informal contact with your competitors. Take the person you know best at your key competitor to lunch and try and get as much information as you can as to their plans for the coming year.
Gross Profit
Once you have a good handle on expected revenue take a hard look at what you expect your cost of sales to be for the coming year. If you know what your historic sales have been then you should have a good idea of what your gross profit for the prior years was. For our receivable financing firm the most important cost of revenue for us is the amount we pay for the money we use in financing our client base. If you are a service firm it might be labor, and if you are a manufacturing concern it would be the cost it takes you to produce the "widgets" that you sell your customers. You may be able to spot trends in your gross profit by looking at the monthly financial results of your firm over the past year. You should also take a look at your product mix and the gross profit associated with each SKU. Do you expect the product mix to change in the next year? Should you be pushing a higher gross profit product? Remember, budgeting isn't all about the results, it is about the things you learn by going through the process.
I try to keep these blogs in small bite sizes so I think we will extend part 3 of this series to include another entry that includes fixed costs and the assets and liabilities it takes to produce your product.
For more information about our all electronic, online receivables financing product for small business click the link below or give us a call. 888.833.2286