Budgets Matter

Six Advantages to Having an Accurate an Updated Budget

By Mark Johnson
Originally Posted: June 23, 2010

I have two clients that are both very focused on determining their budget for the fall of 2010. One of the clients already established a budget back in February while the other client has never even done a budget before. Both are small family-owned businesses that have survived for at least 10 years.  So why the difference in philosophies?

Here are some general observations on budgets:
  1. Have a plan at the beginning of the year that everyone in the company understands and believes is achievable.
  2. If your current situation at mid-year has changed your assumptions dramatically, then make a revised fall budget so you can reset expectations.  Unrealistic budgets are ignored and therefore of little real value anyways.
  3. Each month compare your actual results to the budget and be prepared to discuss the variances.  Why are the differences occurring and are they due to timing or fundamental shifts in the operation of the business?
  4. Review your assumptions at least quarterly and decide if you need to reset your expectations.  Budgets provide a meaningful goal to achieve as a company and can be fun to compare actual results to the plan.
  5. Information from accounting and finance needs to be timely and accurate for it to be of value to compare to the budget.  Make sure to have the budget loaded into your existing accounting package so all the budget line items match-up with the reported actual results.
  6. It is important to create Key Performance Indicators (KPI’s) for your business so you can measure results daily and weekly.  These KPI measurements may use budget assumptions and data, but they often require operational information as well — for example:  average sales-per-customer requires both sales revenue and an accurate customer count.

Finally, a good finance professional such as the controller or CFO can help provide guidance when preparing and analyzing results to the original budget.

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