We’ll shout it from the rooftops. Avidia loves businesses! We love the way they create jobs … line our main streets … stimulate our economies … and make our communities better for us all.

And we love giving them the solutions and guidance they need to grow and succeed. That’s why we’ve teamed up with local financial experts to share important advice on various aspects of managing money.

This blog features an interview and conversation with Jim Roche, CPA, MBA, and Founder and CEO of Robust Alternatives and MyCFO. Jim, who works with a range of growing and entrepreneurial companies, will share one of the most important ways for business owners to take charge of their finances … (drumroll please) … budgeting.

Jim, can you tell us a little about your background and what makes your business tick?
Well, as a CPA, I help businesses with taxes and financial reporting. I have, however, been spending an increasing amount of time working as an interim CFO for companies, overseeing their company strategy and using financial information to help guide their business growth.

In your experience, where do companies need help with managing finances?
One of the things I’ve found is that many companies, including growing ones don’t have a budget. Their monthly reporting usually involves answering a single question: “Where are we compared to where we were last year?”

While that can be a good measure if you’re trying to grow your business, it doesn’t tell the whole story. There may, for example, be some good reasons why you’re spending more money this year. You may be trying to take the business in a different direction. And there may be good reasons why you expect your business to tail off as you refocus.

What’s a better way to plan for measuring business performance and planning?
Comparing budget versus actual spending can provide a better gauge. To help with that, I recommend that companies sit down early in the year to answer some key questions:

Where would we like to take the business?

What specific goals do we have?

What are the key metrics we will use for measuring that?

How do businesses get started with a budget?
Part of that is looking at expenses in prior years. And another part is reimagining where they expect to take the business.

For me, it always starts with revenue and getting stakeholders involved that can really impact it.

For example, I recently met a business owner with multiple locations. His goal is to grow revenue and he’s decided to put accountability for both goal setting and achieving revenue in the hands of his store managers since they have a better sense of what they could expect from the market.

How do you create a budget?
Businesses should create a monthly budget starting with revenue. From there, they should be able to determine the cost of goods sold either because they are selling the same products they have sold in the past or because they know what the cost would be for new products.

Another factor that should be considered in the budget are admin salaries. For example, if you are adding a new store location, will you need to hire a new operations manager or sales manager? Think about whom you will be adding to achieve your growth plans and factor that into the budget.

Once you get the head count, look at sales and expenses from the previous year and determine what variable costs may change. For example, given inflation, will utilities or occupancy costs increase for your new location?

Your cost projection should also consider fixed costs, which aren’t revenue dependent. This might include depreciation on a facility you already own.

Another category of costs should be step-up costs, which start off fixed, but could increase based on your sales. For example, your inventory carrying costs may be fixed for a certain point, but if your business is growing and you need to increase and store inventory, you may have new costs, such as warehouse space.

How do you work with the budget?
Well, for your budget to work, you have to have a profit. If the profit isn’t there, you’ll need to look at what you need to accelerate or delay in your business plans to get the profit you seek. For example, you may need a certain profit for loan covenants, so you can stay in good standing with your lender.

Your profit will also require taxes, so you’ll need to make taxes part of your budget.

Once you create your budget, review it every month and every quarter to compare budgeted vs actual.

What else should you consider when creating your budget?
I really like when companies use many indicators of their performance. I have one manufacturing client, for example, that uses units sold as an indicator. While that may not tell the revenue story, it does help them get a sense of handling costs.

In short, what’s the biggest advantage of budgeting?
Budgeting vs. actual reporting allows you to easily gauge where you are in relation to your business goals and to adapt them as needed. Ultimately, it’s all about having more control of your business.

Looking to learn more about budgeting for your business?
Visit Jim’s website or contact him at [email protected] or 508-243-1684.