I have two clients that are both very focused on determining their budget for the Fall of 2010.  One of these clients already established a budget back in February 2010 the other client has never done a budget before. Why the difference?  Both are small family owned businesses that have survived for at least 10 years.  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 midyear 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.

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 a result as a company and can be fun to compare actual results to plan.

5.  Information from accounting and finance needs to be timely and accurate to be of value to compare to budgets.  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 to measure results daily and weekly.  These KPI measurements may use budget assumptions and data but often require operational information as well (example:  average sale per customer requires both sales  revenue and an accurate customer count).

Finally a good finance professional such as the controller or CFO helps provide guidance in preparing and analyzing results to the original budget.