MoldMaking Technology

DEC 2018

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moldmakingtechnology.com 23 By Charles Daniels How to Create an Accurate Budget Proper financial planning is integral to the success of every mold project. and provides the basis for which your shop can measure suc- cess. Therefore, it is very important that you dedicate serious effort to this process. Personnel from operations, sales, human resources, purchasing and management should provide input and play a key role in drafting the budget. Start the process a few months before the next fiscal year. Start by collecting data, such as information on the company's performance history to establish a baseline and informa- tion from trade groups, customers and suppliers to predict potential trends. Remember to consider the impact that price increases, customer losses or gains and workforce and capacity changes will have on the operation over the budget period. Next, set a profit goal. Establish revenue targets using sales forecasts and information from the current month's pricing column. From there, list a detailed account of all expected expenses and subtract them from revenue. Compare the bot- tom line to the profit goal, and make adjustments as necessary. The only two ways to increase profit are to raise revenue or decrease costs. Shops should always focus on increasing rev- enue, as costs can only be reduced to zero, which is not practical. Revenue, on the other hand, can be improved as far as capacity will allow. Several itera- tions may be necessary, as the objective is to be as accurate as possible with predictions. Most businesses do not have revenue and expenses that are evenly distributed throughout the year. To address that, break down the annual budget into periods, such as months. This provides for a much more accurate and useful tool. As I discussed in "Making Sense of Financial Statements," it is vital that you use percentages of income for each line item along with dollar amounts. This will help you identify issues and oppor- tunities throughout the year. Complete the final document at least one month before the fiscal year H ave you ever received a new project, walked into the shop, set a block on a machine and just started cut- ting to see what happens? No design, no plans, no programming—just using your experience and intuition? Of course not. What a ridiculous notion! All professional mold builders understand that accurate planning is integral to a project's success. With this in mind, it is surprising that so many shops oper- ate without a financial plan. As with a mold project, you can only achieve optimal business success through proper plan- ning. A major component of this process is budgeting. Many methods of budgeting and assigning costs are available. Larger companies may require more intricate budgets. This article will focus on the fundamentals of basic budgeting and the steps for developing an annual financial plan. Budget Basics A budget is an essential tool that helps you communicate goals and spending guidelines. A budget sets the tone for the year Start by collecting data, such as information on the company's performance history to establish a baseline and information from trade groups, customers and suppliers to predict potential trends. Business Management

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