The first budget article really seems to have struck a chord. Either because people like the Beatles, or they realise they are working too many hours and not spending enough time with the people they love.
It’s easily done.
I can’t stress this enough – get an accountant, do a budget, have monthly meetings, manage your expenses and your cash flow.
There are lots of budget templates around. There are some good ones here: https://www.fundera.com/blog/small-business-budget-templates and another: https://www.thebalancesmb.com/sample-business-budget-template-393033
An internet search will reveal lots more.
Teacher-owner-operator schools and schools with only a few employees shouldn’t have too complicated a set-up and therefore the budget should be easy.
Income will largely come from student fees, joining fees, sales of textbooks and materials, perhaps extra lessons and study abroad. All of these go in the top section: REVENUE. Add them together to get Total Revenue.
Next, total your expenses. These will likely be rent, admin services, salaries, employee bonuses, travel, welfare and social costs, utilities, communication, advertising, web hosting, accountant’s fees, legal fees, textbooks, materials, stationery, commissions, refunds, banking, insurance, sundries. All these go in the second section: EXPENSES. Add them together to get Total Expenses.
It’s a short and simple list and it’s not very complicated at all. The key is to do a budget in advance, update regularly and stay organised.
You then deduct Total Expenses from Total Revenue and voila! Hopefully you have black and not red ink, a profit not a loss.
This is the NET PROFIT, before tax and other deductions. Most people probably don’t need to worry too much about EBITDA, but see here: https://www.investopedia.com/ask/answers/042415/what-exactly-does-ebitda-margin-tell-investors-about-company.asp.
And for most independent schools it really isn’t worth worrying about gross profit, net profit and the difference between the two. Businesses can account for these any way they choose. Best to keep it simple.
(More information here https://www.accountingtools.com/articles/what-is-the-difference-between-gross-and-net-income.html.)
Nobody can predict the future, but when doing a budget you have to try. Be realistic. What were last year’s figures and what do you expect this year’s to be?
You can do your budget starting any period you like, but it makes sense to do it as your books close for the year – and that’s your accounting books, not the textbooks closing for the last time at the end of the academic year.
Here in Japan companies can choose when they close their books – it doesn’t have to be done at the end of the calendar year, or at the end of March (the end of the fiscal year). We close our books at the end of July to avoid the busy season for accountants and other businesses filing at the end of the fiscal year. It makes no difference to cash flow or the budget.
Whenever your budget year starts, do a month-by-month prediction of income and expenses for the whole coming year.
The profit, or loss, is then added to or deducted from the cash flow at the bottom.
There are three parts to the budget: the projected figures, the actual figures, and the cash flow.
Record the actual figures underneath the projected figures to measure performance.
Cash flow is crucial.
You should start the budget with some cash for the business to use at the beginning of the cash flow. If you don’t have any cash and you have an extra, unexpected bill to pay, this could threaten your very existence.
It’s immensely helpful to speak to a financial expert, somebody outside of the business. Ask your accountant to do the budget template for you, and how much they would charge to do that and monthly budget (management accounts) meetings. It’s money very well spent.
The budget is one very important tool, among others, to see how your business is performing, and how much you can spend on what.
Hopefully you will see an excess in cashflow you don’t need to take as profit, and realise you can spend some cash on outsourcing tasks you don’t like or aren’t good at, and spend the time it saves with people you love.
Next time: Budgets in the flesh.