Budgets Why Do We Create Them And Then Forget Them
Jan 11, 2010
Too many business people are - to say the least - skeptical about putting together a budget. Some of the skepticism comes from past experiences where they have been beaten by management for non-performance of budgets. Or the reporting requirements have been so demanding, the real tasks of productive employment goes out the window while they run through the hoops in order to get management off their backs.
But if the truth be known a budget can be a very valuable tool for business owners once they learn how to use the tool. Yes budgets are a tool and should be used accordingly. As a partner with B2B CFO® I work with business owners to not only create a good set of goals for the year, but also determine a set of action plans which are needed in order to get the ship moving in the right direction.
What do I mean by action plans? Let's use a common life experience to look at what I am talking about. Here we are at the beginning of the New Year. We all have heard for years about New Years Resolutions. This year we determine we are going to take it serious and get ourselves into shape. We have 20 pounds we would like to get rid of and we want to improve our cardiovascular.
We have set a goal. Now how do we go about making the goal happen? We might go out and buy an elliptical exerciser, join a health club, or seek out the expertise of a trainer. All of these are action plans. They are things we are going to do in order to help ourselves accomplish our goal.
So according to our budget we have now set a goal to improve sales by 10%. Great! Now how are we going to accomplish this? By using action plans...for example...
1. Who are our competitors? What are they currently doing to disrupt my client base and how can I stem this tide? If you aren’t spending time with your customers your competitors are.
2. Who are the customers we don't have that we would like to bring into the fold? Once identified, who in the organization is a decision make and how do we get acquainted with them?
3. What value are we going to communicate to potential customers? How are we going to meet their needs?
And/or we have decided we need to improve our cost structure. What can be done? Well we can set action plans to...
1. Work with key vendors to identify material costs which can be improved. Look for ways the vendor can help you with inventory issues or relief of cost increases.
2. Identify areas where labor can be improved. Brainstorm with employees to identify flows which can be improved to facilitate better "through put" in your facility. Basically how can we do more with the work force already in place? We know sales are going to increase, right, so how do we get those sales out the door without increasing head count?
Once your action plans are put together then make sure you review the progress made in each area on a if not monthly at least quarterly basis. Feedback is essential in order to keep the whole organization focused on the end goal.
Don’t let the process intimidate. No, this is not an easy exercise but let’s face it, this is how most companies grow and continue to improve and progress. As a part-time, long-term business advisor (part-time CFO) we can get your business moving in the right direction just by following some basic rules of engagement.
Let’s face it…if you aren’t improving your situation, you are going in the wrong direction because your business will not stay the same. It will either grow or decay. It’s your choice.