Why budgeting and planning is a must (Winter 2012)

In today’s economic climate it has become more important than ever to have developed a good business plan and to have prepared a budget. Too many businesses only prepare these documents when their financier requests them.

From our experience, many winery businesses follow an ‘earn-and-spend-as-you-go’ strategy, which may have worked in the past. However post-GFC (Global Financial Crisis), in most, if not all industries, there is necessity for a more disciplined approach to running a business. A good business plan and budget covering most winery activities can take your business in a new direction.

It’s essential to plan and tightly manage your winery business’s financial performance. Creating a budgeting process and plan is the most effective way to keep your business, and its finances, on track. Structured planning can make all the difference to the growth of your business. It will enable you to concentrate your resources on improving profits, reducing costs, and increasing your return on investment.

The key benefit of business planning is that it allows you to create a focus for the direction of your winery business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business.

In particular, sound business planning can give you:

  • Greater ability to make continual improvements and anticipate problems
  • Sound financial information on which to base decisions
  • Improved clarity and focus
  • Greater confidence in your decision-making.

Budgeting to secure the desired future

Business planning is most effective when it’s an on-going process. However, to secure the desired future for your business, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time, and make more informed decisions.

A budget outlines what you will spend your money on, prioritises your expenses and needs, and dentifies how that spending will be financed.

There are a number of benefits of drawing up a budget for a winery owner, including being better at:

  • Managing your money efficiently
  • Monitoring performance
  • Meeting your objectives
  • Improving decision-making
  • Identifying problems before they occur, such as the need to raise finance or cashflow difficulties
  • Planning for the future
  • Increasing staff motivation.

Business plan plus budget equals financial action

By basing your budget on your business plan, you will be creating a financial action plan. This can serve as a great tool, particularly if you review your budgets regularly as part of your annual planning cycle.

Most banks offer basic budget templates that can be downloaded from their websites. However it is a good idea to sit down with your business advisor and work through your budget.
A great software programme that many business advisors use is Sage WinForecast. Sage WinForecast Professional allows you to produce extremely detailed and accurate forecasts quickly and easily. You can produce integrated Profit & Loss, Balance Sheet and Cashflow forecasts up to 10 times faster than with a spreadsheet.

Using your business plan and budgets effectively will allow your business to grow and provide information to help you make better and smarter decisions. Your financial advisor will be able to help in this process.

Published in WINE Hawke’s Bay Winter 2012.

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