What’s more important to treat? Symptoms or causes?
Previously we explored the importance of deciding on a direction you want go and why it is so important to budget and set goals, today we take the next ‘step’.
As you well know, sales just don’t happen. Costs don’t just drop because you want them to. Sales and costs are a result of other underlying factors. Put another way, they are symptoms of causes.
The business budgeting process quantifies the symptoms, and by asking a series of ‘What leads to this number?’ questions, it also identifies the underlying causes.
For example, underlying factors contributing to a sales (revenue) figure could include:
- The number of calls made,
- The number of customers walking through the door,
- The percentage of conversions of enquiries or walk-ins to sales, the dollar value of the average transaction, or simply
- Where your marketing is targeted.
These are all called drivers.
The sales figures are simply a result of these drivers. Costs are no different.
For example, the rent paid may be a result of the storage you need for your stock levels. Wage costs may be blowing out because of overtime paid but underlying that may be inefficient staff. Or a lack of clear processes. Or both.
That’s one of the most valuable aspects of preparing your budget. Not the budget itself but identifying your business’ drivers so you can work on improving them.
To start this discussion give us a call so we can discuss what drives your business and help make it a success.