Being Ready for Anything in Today's Economy is a Safe Bet
Author: Keith Huggett
2013 is a third of the way gone and business budgeting season is well underway. Hopefully, you have a budget for your business, but if you don't, it's time to get started on creating a clear plan for your revenue.
Here are four reasons why you should take a careful look at how you budget your operations throughout year:
- Budgets can be strategic documents: Many businesses allocate funds based on arbitrary criteria, like what a department spent last year. The best business budgeting processes take your business plan into account and allocate funds to ensure that your business has the right money in the right place to execute your strategy. This might require spending significantly more money in some areas while you have significant cuts in other areas. Simply increasing each department's budget line by a few percentage points won't accomplish this.
- Budgets can include outside information: At the most basic level, you or your CFO should be sitting down with your department heads to review their budgets and their fund requirements. You can go even further by using outside cost data to compare your spending expectations with what other similar businesses spend on an aggregate basis.
- Budgets help you manage your cash flow: With a budget that takes into account the natural seasonal ebbs and flows of many businesses, you can plan for crucial expenses like payroll and taxes, and not get caught short.
- Budgets have limitations, too: Business budgeting can help you do a number of things, but it is not a panacea. No matter how perfect your budget is, it may need to be updated periodically to better reflect your business' reality. Budgets are also not useful as performance measures for compensation since many managers can game their numbers to meet the budget without actually meeting broader company objectives.
