Looking ahead, one needs to also put together the plans for the next financial year. The starting point needs to be assumptions about the business. How will the market grow? How will the various product lines grow? What will happen to pricing? Assumptions are what then result in the numbers for the year, and therefore, the targets for the various groups. There needs to be a base number and a stretch number.
The next task is to put together the budgets for the year. Salaries are likely to be one of the biggest components for most companies. They will account for 50-70% of costs, depending on the stage of the company.
Overall, there are three key numbers: the topline revenues, the gross margin (topline – cost of sales), EBIDTA (gross margin – direct costs). Then, there is also capex that needs to be factored in.
Even as these numbers are made for the full year, they will then need to be broken up by quarter. One thumb rule I have found looking at our revenues over the previous years is that full year revenue tends to be about 5X that of Q1. So, getting off to a good start in Q1 is very important. That builds the momentum for the rest of the year.
