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How To Keep Your Budget Relevant All Year Long
By Brad Farris, EnMast
I’m a bit of a budget freak. For me, a budget is the most useful tool you have for running your business. But I know this isn’t true for everyone. I know that for most people a budget is something you work on at the beginning of the year and then don’t touch the rest of the year. And that’s a shame.
Here’s how you can make your budget more dynamic and useful all year long.
First, your budget can’t be a static document that doesn’t change. Your business is changing so your budget file needs to change with it. I update my budget monthly, as part of my monthly review process with my management team. We look at the assumptions, and update them based on what we know now. We look at the sales forecast, and adjust it to what our pipeline looks like. With that sales forecast, we ask ourselves:
- How's our capacity?
- Do we need to hire someone new?
- How are our expenses? Where are we spending too much? Where are we not spending enough?
If your budget file is dynamic, you can change things – the sales forecast, the roster and the expense assumptions – and see what effect your changes had on your bottom line for each month and the full year. That makes it a lot more fun to look at your budget! It gets you to start asking “what if” questions. What if I invested more in my marketing plan? If you know how well your marketing is performing ($/lead) then you can start to forecast what that investment could do in terms of sales and profits.
The other thing that makes me run for my budget is unexpected changes. When my 3rd largest customer gets acquired by a bigger company, I ask my budget to tell me what that means for my cash flow. Of course I’m going to replace them, but how long will it take? Do I need to delay the search for a bigger office for a couple months?
Once I got addicted to the real-time info that my budget gives me, I decided to spread that knowledge to my key team members. I didn’t just give them access to the budget file – I determine our bonus pool based on our performance to the budget we set at the beginning of the year. There’s nothing that keeps the team engaged in our budget like tying bonus payments to it!
Reviewing the budget is like giving our business a physical exam — it lets us check the vital signs of our business and get an early warning of any underlying problems.
Creating a dynamic budget is not rocket science but you might need a little hand-holding in the beginning. I wrote a free -book called Ask Your Budget: Amazing Questions a Small-Business Budget Can Answer complete with videos and templates to walk you through the process.
Is your budget dynamic or stagnant?
February 19th, 2013