If your accounting system has been around for a while, you will have many general ledger accounts. New accounts were created when you needed to watch a particular expense for a period of time or your bookkeeper created a new account to allocate an unknown expense when you were overseas that time. It has stayed like that all these years. Does this sound familiar?
When it comes to doing your budget or what I like to call it … your forward predictions … generally you compromise by forecasting just the big ticket items or you enter some budget figures in your accounting system, only to be interrupted, and then all that detail never gets completed and the budget is basically a waste of time.
Ah ha! There is a solution! The BIC Model allows you to take your complicated general ledger and map it to a generic Chart of Accounts. The idea is to simplify. You can map similar accounts to the one generic account number thus aggregating like items. For example, you may have separate accounts for each of your mobile phones and the main phone system. These might all be aggregated into a generic account called “communications” or similar. The effect is to simplify the budgeting/forecasting effort.
By using the aggregation process you are able to do a complete forecast of everything in your general ledger. The reward is a forward prediction of your overall cash position in the months to come up to two years ahead. Most people work with from 9 months to 12 months ahead in quarterly steps.
As with all forward predictions you are most likely to be on top of what is happening next month and probably the month after. Then it becomes hazy. But you should keep predicting because without a map your cannot build the business you want. You need the map to guide you.
The beauty of the BIC Model as a business control tool is that as soon as this months data comes in you can review and change the forward projections as often as required. If one of your generic accounts has too many aggregated accounts you can choose to separate one or more of them out by modifying your mapping scheme.
The BIC Model is a wonderful tool to keep you thinking about your business and taking actions that keep you on track. As I say, “keeping your business in control”.