Owain and Dominic ask should they aim for what they need financially or reach for the sky? Well they could do both. A good way to start this is from the bottom up. You should have a good idea as to what most of the overheads should be, rent, electricity, insurance etc. From these figures you should be able to calculate what sales the business needs to achieve in order to generate sufficient gross profit to cover them. Don’t forget to include a “living wage” for the owners in this calculation, the business needs to pay everybody that works for it otherwise you are fooling yourself.

Business Budgets and Targets

Having gone through this exercise for say a financial year you will have clarity on what the minimum level of sales are needed for the business to wash its face and justify its existence - in otherwords survive. Lets call these figures Budgets. No business wants to do just the minimum and needs targets to aim at. The more profit the business can make and retain the more options it will have for growth and investment.

So, it is a good idea to draw up a second set of figures, based on the budgets, which incorporate sales which you could strive to achieve. These should be aspirational but at the same time achieveable, albeit they might need a fair wind. Lets call these figures Targets.

So now you have two sets of figures, Budgets which you have got to achieve and Targets which if you achieve you will be over the moon. Anything over Budget is a result and the closer you get to Target the better. Because this is not a perfect science as you go through the year think about rebasing your targets using actual year to date results and adding the target figures for the remainder of the year. This will take out any existing underperformance or overperformance and keep your targets realistic.

It is a difficult challenge to get your targeting/forcasting meaningful but it is most definitely a worthwhile exercise to draw up business projections and over time will get easier.