Year End Budget Analysis for the Flower Farmer
Oh no! Not another budgeting blog!
I promise, this is the last and final blog on budgeting as it is the final piece to the budgeting puzzle.
Having a budget in hand is a powerful tool to be able to keep a realistic grip on your flower farm’s finances. It has given you something to look back to over the season to see if you are sticking with your created budget.
Last blog, we left off on creating a budget for your flower farming business where we focused on creating a budget that will answer three questions when it comes to your flower farm’s overall finances:
What do we know?
What do we guess?
What do we hope?
Today we are going to take last year’s budget one step further by doing a Budget Analysis. This sounds more frightening than it actually is. With your last year’s budget, you took an educated guess of what was going to happen in terms of your flower farm’s sales and expenses. Now we are going to take those educated guesses and compare it to your actual sales and expenses.
This is different than a profit analysis where we look at our profits to determine how to increase profitability either through making additional sales or cutting expenses.
With the budget analysis, we are going to peel back and look at the “why’s” behind our financial decisions. This process is going to enhance the power of having a budget as a tool in that it is going to help refine in creating your new budget for this year.
With performing a budget analysis we are going to answer two questions that will play off each other:
How well did you guess on your last year’s budget?
What can you do differently to get a more accurate budget for the coming year?
To get this party started, let’s prepare the comparative budget analysis!
Preparing the Budget Analysis
First and foremost you need to have two items ready to go in order to move forward with the budget analysis:
Last fiscal year’s Budget (prior year budget)
Last fiscal year’s Profit & Loss, this requires having up to date books to make this process accurate and worth the time.
Assuming you have those items on hand and ready to go, download the Budget Analysis Worksheet by clicking the button with your preferred program, Excel or Numbers, below.
Once you have downloaded the Budget Analysis Worksheet, start by entering in the prior year’s budgeted numbers.
Next, enter in the prior year actual numbers from your Profit & Loss.
From here, I’ve already done the work! Once entered, the worksheet will automatically calculate the variants and percent differences.
Now, it is time to analyze!
Analyzing the Budget Analysis
The process from here is rather simple in that you are going to go down the columns and self analyze the difference between what you guessed (the prior year budget) versus what actually happened (the Profit & Loss).
Some notes to make while you are comparing the variants and the percentage differences. It may seem repetitive having the variants and the percentages but there is a method to my madness.
Comparing the Variants is the dollar difference between the prior year budget and the Profit & Loss. The Percentage difference is going to further help clarify the significance of what happened.
The actual monetary difference (value difference) between the prior year budget and the Profit & Loss may bloat or undermine the significance of the difference. The percentage will take the difference and put it into perspective.
Overall, we are looking at large percentage differences, over 5-7% between what we had guessed versus what actually happened so we can further investigate “why”.
How Well Did You Guess at Your Last Year’s Budget?
This is where you are looking at the numbers and asking yourself what happened and why it happened.
For example, if you see an increase in your Revenue in Market sales over what you guessed on last year’s budget, why is that?
What did you do differently?
Why did you do that differently?
We can also inverse that example and say maybe you say a decline in your Revenue for Market sales than what you had guessed on your last year’s budget, why did that happen?
What did you do differently?
Were there uncontrollable circumstances that contributed to the less than anticipated sales?
Go section by section to further asses what happened. Then it’s time to apply your “why’s” to help answer the next question.
What Can You Do Differently to Get a More Accurate Budget for the Coming Year?
Once you have a better understanding of the “why’s” behind the differences between what you guessed and what actually happened, it is time to think about how to apply it to next year’s budget to get a more accurate budget.
Some questions to ask yourself:
What sales outlet should I focus on more?
Is there a particular variety that sold more?
A particular variety that sold less or failed?
Did certain expenses, such as bouquet sleeves or compost, go up?
Once you have completed your budget analysis, you can take the insight you have gleaned from it to create your new budget for the coming fiscal year.
As always, we are looking forward to helping you hand blooms soon!
- Graham & Jessica