QUESTION: When filling out my monthly checklist, I beat my revenue forecast and all discretionary spending was under budget, but I didn’t hit my net income goal- should I be concerned?
ANSWER: Generally, if we hit our revenue goals and control our variable spending, we’re going to turn a profit and hit our goals. The reason why your net income didn’t hit our goal is because there was a large “fixed” expense that hit your account that month. When we do our forecast and budget, we average the fixed costs over the course of 12 months, but the reality of it is a lot of the fixed costs aren’t paid monthly, they’re inconsistent, and sometimes a bill for the entire year is paid in one month (ie, liability insurance). We need to track the data on a monthly basis, but when looking at a budget we don’t want to make drastic changes after that one month. If you don’t hit your goal, that is fine, focus on being under budget the next month. We’ll review your budget on a quarterly basis (sometimes longer because we want to see trends, small datasets are insignificant), if we find we’re not keeping up with expectations, then we’ll make changes, so do not be concerned over one month. Budgets are forever changing, as revenue beats expectations, we can be more lenient in our expense allocations, but if we are under our forecast we’ll need to cut back on our spending. Continue to complete our monthly homework and we’ll let you know when a budget adjustment is needed.