It’s February … and You Don’t Have a Budget?
by Mark Miller
It’s possible to circumnavigate the globe without a map—you might just want to allow for a little extra time. It’s possible to build a house without blueprints, but you probably wouldn’t want to live in it. And, it’s possible to run a business without a budget. Trouble is, it costs much more to do it.
A well-conceived budget is and does many things for your business. Here are just five ways building a budget now will help you build your desired future.
A Good Budget is a Cornerstone of Your Strategic Plan
Good strategy requires good numbers—it’s just that simple. It is impossible to look at the big picture without making reasonable assumptions about where, how, and when cash will be coming in, and where, how, and when cash will be required. Every major strategic business decision—staffing levels, capital expenditures, new products or new markets, response to competition—requires consideration of available cash or capital. Without a well-conceived budget, it becomes very difficult to be truly strategic.
A Good Budget Clarifies Your Business Levers
Modeling the variables that impact a business’s cash flow deepens management’s understanding of the financial impact of changes occurring in those variables. Price adjustments, changes in purchasing or production costs, scaling up or down your sales force, and the impact of capital expenditures on costs or production capacity can be captured and run through “what-if” scenarios months or even years in advance. The modeling involved in developing a budget can help identify where seemingly minor changes can have a major impact on financial performance. If you’re curious about how to apply these modeling techniques to your business, reach out to the seasoned business growth strategists at Burke & Schindler today.
A Good Budget Serves as the Primary Tool for Resource Allocation
Need to purchase new equipment or hire more employees? What about reducing your spending on marketing or on inventory? Adding a new product line, acquiring an existing producer, changing your employee benefits package, or implementing an incentive bonus program all require dedicated resources and long-term planning. Both strategic and operational decisions are, at their core, an exercise in the allocation of scarce resources. Rather than relying on gut and intuition, a budget model will reveal the financial impact of these choices and lead to better, faster decisions about how best to invest the business’s resources.
A Good Budget Enforces Accountability
Budgets help leaders monitor performance. While there will always be subjective measures of management, budgets serve as one of the most objective benchmarks. Leaders can closely monitor progress toward the budget goals and timetable. Significant variations from the budget require attention to determine if performance is off course or if the budget needs to be revised because of unexpected changes in the operating environment.
A Good Budget Establishes Objective Targets
Goals that aren’t written down are just wishes, and businesses don’t run on wishes (unless you’re in the greeting card business). Setting target goals for sales and margins and operating expenses will help you maintain focus on sales and margins and operating expenses. They put everyone on the same page and keep everyone pulling in the same direction. In most cases, focus leads to improvement, or at the very least, insight as to what assumptions need to be altered. Both operational improvement and management insight about business assumptions are natural outcomes of establishing targets through the budgeting process and monitoring performance against those targets.
Making better decisions, enhancing management’s understanding of business levers, investing capital in the right places, holding people accountable, and aiming for specific targets all lead to improved financial performance. A well-conceived budget does just that. Over the past 30 years, the dedicated business strategists of Burke & Schindler have helped hundreds of businesses develop sophisticated budgets that become essential management and strategic tools. The payoff is often large and continues to pay dividends year after year. Call us today to see how Burke & Schindler’s business modeling and budgeting tools can help your business achieve its goals this year—and beyond.