Do you make good use of a budget in your business? You should.

As Zig Ziegler famously said, "if you aim at nothing, you'll hit it every time." So how should a business set its aim, you ask? Through the development and use of a detailed and realistic budget. If your business doesn't actively use a budget, our accountants and advisors in Sedalia, Marshall, and Osage Beach can assist you in creating one and understanding how to use it as a management tool. Through the use of historical and forecasted data, we help our clients establish a budget that lays out a path to success in the year to come. By observing actual business performance against budgeted performance, we create opportunities to gauge success and get back on track when things take a turn. 

By now, some businesses have completed their 2021 budgets while others are still crunching numbers and scrutinizing line items. As you put the finishing touches on your company’s spending plan for next year, be sure to cover the finer points of the process.

This means not just creating a budget and filing it away, never to be seen again, but ensuring that it’s a useful and well-understood plan across your management team. 

Obtain buy-in

Management teams are often frustrated by the budgeting process. There are so many details and so much uncertainty. All too often, the stated objective is to create a budget with or without everyone’s buy-in for how to get there.

To put a budget in the best position for success, every member of the leadership team needs to agree on common forecasting goals. Ideally, before sitting down to review a budget in process, much less view a presentation on a completed budget, you and your managers should’ve established some basic ground rules and reasonable expectations.

If you’re already down the road in creating a budget, it may not be too late. Call a meeting and get everyone on the same page before you issue the final product - our team can help facilitate that meeting, if you need it. 

Account for variances

Many budgets fail because they rely on purely accounting-driven, historically minded budgeting techniques. To increase the likelihood of success, you need to actively anticipate “variances.” These are major risks that could leave your business vulnerable to high-impact financial hits if the threats materialize.

One type of risk to consider is the competition. The COVID-19 pandemic and resulting economic impact has reengineered the competitive landscape in some markets. Unfortunately, many smaller businesses have closed, while larger, more financially stable companies have asserted their dominance. Be sure the budget accounts for your place in this hierarchy.

Another risk is compliance. Although regulatory oversight has diminished in many industries under the current presidential administration, this may change next year. Be it health care benefits, hiring and independent contractor policies, or waste disposal, factor compliance risk into your budget.

A third type of variance to consider is internal. If your business laid off employees this year, will you likely need to rehire some of them in 2021 as, one hopes, the economy rebounds from the pandemic? 

If variance analysis is a skill you do not possess, reach out to us. We'll be happy to discuss CFO-level services that we bring to the table in many of our client engagements. 

Eyes on the prize

Above all, stay focused on the objective of creating a feasible, flexible budget. Many companies get caught up in trying to tie business improvement and strategic planning initiatives into the budgeting process. Doing so can lead to confusion and unexpectedly high demands of time and energy.

You’re looking to set a budget — not predetermine ever aspect of the company. Our firm can help review your process and make sure it helps you better understand and manage your business in the year ahead. 

© 2020