It’s that time of year – and what a year it’s been! One can only hope 2022 will bring about a smoother, more predictable time than 2020 and 2021. Things are beginning to normalize post-pandemic, and we all know it’s a whole new normal. But one thing that has not changed is the importance of setting a budget for the year ahead, and making it the most accurate, effective document possible.
Where to begin? The answer lies in your 4 Pillars of Productivity, which will drive your business forward in 2022 and beyond. All four pillars are people related, because that’s what your company’s profitability depends on. They are:
1. Payroll and payroll tax administration
2. Employee benefits
3. Safety and risk management, and
4. HR compliance.
When all four of these pillars are solidly supporting your business, the rest will follow. So, as you develop and implement your budget, keep them in the forefront.
The Basics of Budgeting For a Business
In a nutshell, a budget is an outline of your planned financial operations for the year ahead. Its elements include revenue and revenue components, fixed and variable costs, and net and gross profit amounts. With your eye on the four pillars, use these steps to craft your budget:
Gather past and current data.
Collect financial data, including total revenue earnings and expenses, from the past year up to the current time frame. Break it down into categories; for instance, total revenue into sales revenue and investment returns, and expenses into fixed costs, variable costs and one-time payments.
Complete a preliminary analysis.
Evaluate your data to get an idea of what revenue and expense projections to set for the year to come. Look for trends that will help identify increases and decreases in both profits and costs.
Set a time frame.
Establish a budget time frame. Will you use annual, quarterly or monthly parameters? Take a conservative approach by underestimating revenue potential and planning expenses according to the higher end of your average projections.
Establish revenue expectations.
Develop a realistic revenue goal estimation based on your past earning history, and use this as your baseline goal. If you have additional income sources, such as investments and stock shares, project a conservative amount that you expect to earn from them.
List your expected costs, such as operating expenses and cost of good sold, as well as mortgage, loan and other fixed payments. Be less conservative with this projection as you plan for cost reduction and revenue-generating strategies.
Create a contingency fund.
Set aside a specific amount that you can use in case of unexpected costs or emergencies during the year. A good rule of thumb is to use an amount that covers at least two months of business operations in case the unexpected happens.
Looking To Better Run Your Business?
Once you’ve completed all these steps, you’re ready to launch your budget – and partnering with a professional employer organization (PEO) can help, as you look to 2022 with the idea of budgeting more effectively, making more money and keeping more of what you make, and protecting your assets in the process. From helping you attract and retain the best talent to making your people more productive, your PEO will provide value as its experts help you turn HR into a strategic initiative. To learn more, contact Lyons HR today.