150 CHAPTER 7 ABOUT THESE NUMBERS
Sometimes it does not make sense to operate within a fixed budget. For example,
when sales are very unpredictable, the production department could operate on a flexible
budget. The production manager might be authorised to increase spending by $100,000
for every extra 10,000 units of production above a pre-agreed volume.
‘If the profits are great, the risks are great.’
HOW LONG IS A MONTH?
To save me having to use complicated phrases, please interpret references to months as
your shortest accounting period. Some businesses – such as retailers – use a four-week
accounting period to help compare like with like. They always begin on the same shop-
ping day. Also, I tend to use the term year to mean the longer of a year or an operating cycle
– the amount of time that it takes to buy stuff, turn it into a product, and collect cash from
the lucky buyer. Most businesses use a 12-month period – fiscal year – that sometimes
coincides with the calendar year. It might run for some other period that is convenient for
you, perhaps coinciding with the tax year.
If you are starting a new business and you want to spoil your accountant’s new year’s
eve celebrations, choose a fiscal year that matches the calendar year.
It’s the same, even if you are not in it for the money
Much of the discussion here might appear to focus on the financials for business.
If you are involved with non-profit organisations, government agencies or similar
bodies, your financial statements will look a little different. However, in this case
you will almost certainly have or be able to obtain historical examples that you
can mimic in your business plan – and the broad principles are exactly the same as
those discussed here.