I am seeing fewer and fewer companies relying on the good ole’ fashioned budget process in their businesses today. Most say they don’t have the time or that their financial data is not accurate or timely enough to manage a budget. Well… that’s not good. This actually illustrates a larger concern and could be a sign of weaknesses in accounting processes or a lack of financial knowledge by management.
Regardless of the reasons a business may have for NOT having a budget in place, management needs to step back from the day-to-day business to set up a budget and routine process immediately.
Companies need to evaluate budget-to-actual results on a regular basis (monthly is preferred). Reviewing these reports allow us to stay in control of our businesses by constantly measuring “what should be” versus “what is.” This process reveals problems before the company is blindsided by unforeseen transactions. Budgets also help companies improve their money management. When adhering to a regular budget process, management is “forced” to review financial results on a regular basis increasing the financial intelligence of management which leads to better, more sound financial decisions. Budget conversations force management into thinking and planning for the future – a healthy place for leadership to be.
Consider the following points when instituting and following a company budget:
- Most accounting programs today have budgeting tools built in. If that does not work for a business there are always traditional spreadsheets that can be effectively used (this could add work and potential human error).
- Budgeting periods can be set for what works best in your business…traditionally, budgets are prepared on a monthly, quarterly or annual basis (or a combination of these).
- When setting an Annual Budget, start planning 3 months before the current year end. For a Monthly Budget, plan 1 to 2 weeks ahead.
- Be realistic and authentic when setting the budget figures. Using historical and prior period data will help. Be prepared to have access to the details of account totals to identify one time transactions large enough to throw off a future budget figure.
Final thoughts… when we put a budget into existence, it is now out of our head and into a structure that will produce results. This structure leads management to be accountable and responsible for the numbers in the budget giving management control over the businesses financial success.
