26 Nov Business Alchemy 101 Lesson 16–Budget Compliance–Sales (Application)
I mentioned the carnival game I used to enjoy playing when I was young. I liked playing that game because I could guess pretty well what the speed of the third ball would be based on the speed of the first two throws and win a prize.
This is exactly what creating a budget is all about. Making good guesses. The Budget Compliance--Sales ratio is all about actually throwing the ball and winning the prize. The idea is to hit the target you guess, not go over or under.
Hitting the target (having a ratio of 100%) means that you planned perfectly. This means that all of your allocations and your estimates for ordering and financing your operations are spot on. The closer you are the fewer adjustments you will have to make.
I you do have to miss the target, it is better to me over instead of under. This means you sold more than you had planned and, though adjustments will have to be made on allocations and on your estimates for ordering and financing, you should have more money than what you had originally planned on for the year.
Of course the opposite is true if your percentage is less than 100%. This means you have less money than you had planned on and that you will have to be careful in seeing you financial plans through so that you do not end up in the red for the year.
So ultimately, you want to hit exactly at 100%, but after that, being over 100% is usually better than being under 100%
Important foundational information and...
...Your business THRIVES on a solid FOUNDATION!!!