What Should Your Budget Goals Be?

As we kick off the 2025 financial year, there are two main principles for your budgeting that will help you meet your profit goals. Whether your financial year aligns with Australia’s from 1 July to 30 June or follows a different timeline, these principles remain the same.

Principle 1: Focus on the bottom line

The first principle is to determine what you want your bottom line to be at the end of the year. Don’t get bogged down with sales targets, staffing, or marketing details just yet. Ask yourself, "What is the profit I must achieve over the next 12 months?"

• Set a specific profit target: Whether it’s $100,000, $500,000, or $2.4 million, having a clear, specific target is essential.
• Work backwards from the target: Once you’ve set your profit goal, plan everything else around achieving this number.

For instance, if you aim for a $500,000 profit, identify all your overhead expenses for the year. Let’s say your overheads amount to $1.5 million. This means you need a gross profit of $2 million to cover your overheads and achieve your profit target.

Principle 2: Set a gross profit target

Gross profit, defined as revenue minus direct costs, is the second critical element. Determine how you can generate the required gross profit given your current resources and market conditions.

• Assess overhead expenses: Calculate all overheads you’ll need to invest in for the year. In our example, this is $1.5 million.
• Target gross profit: To achieve a $500,000 profit with $1.5 million in overheads, you need a gross profit of $2 million.

Optimise resource utilisation

With a clear gross profit target, evaluate how you can generate the necessary revenue using your existing resources. Consider:

• Product offerings: What products or services can you offer to maximise gross profit?
• Selective clientele: Determine who your ideal clients are and be willing to say no to those who don’t fit this profile.

High demand can lead to unrealistic expectations, making it essential to maintain a strong business positioning. For example, not everyone can afford a Louis Vuitton product, which is positioned at a premium price point. Similarly, your business needs to be selective about who you serve to maintain high gross profit levels.

Balance capacity and demand

Be strategic about your capacity and the demand you’re meeting. Saying yes to every client may keep your team busy, but it can compromise your profitability and distract you from your financial goals.

• Maintain high GP levels: Ensure your offerings provide the highest possible gross profit.
• Capacity management: Balance your team's capacity with demand to maximise gross profit without overextending your resources.

Being selective and focusing on high-value clients ensures you can achieve the necessary gross profit to cover overheads and reach your profit goals.

Final Takeaway

By setting a clear bottom line and focusing on gross profit targets, you can strategically plan for the 2025 financial year. Remember to:

1. Set a specific profit target and plan backwards from it.
2. Determine the required gross profit and optimise your resources to achieve it.
3. Be selective about clients and maintain high gross profit levels.
4. Balance capacity and demand to maximise profitability.

Implement these principles to ensure a successful and profitable financial year.

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