If you’re reading this, then we probably don’t need to tell you about the importance of having a budget. It’s unnecessary to explain to you that working without a budget is like driving a car cross-country without a map(or GPS).
So, we’ll assume that you’ve done the work of preparing the budget and we know it’s no small feat to successfully complete the process. But how do you use it to guide you during the year?
Without a continuous management process for that budget, it’s no more than a goalpost that only reveals you how great or how terrible you were when you get to December 31st. You probably but a great deal of thought and sweat into that budget, so let’s put all that effort to good use. We’ve got a few tips that will let you make the most of your budget as you move from Q1 to FYE.
Before you can put any helpful tips to work in your operation, you’ve got to make sure that your accounting processes are solid. Not
only should you be able to quickly access current figures for sales and expenses, but each of these numbers should be already broken out into essential categories so you can see where the money is coming in and where it’s going out.
For example, a retailer should be able to quickly see the sales figures for in-store versus online transactions. They should also have easy access to expense categories such as marketing, overhead, and labor.
Not only is having clearly defined categories essential, but that information also needs to be timely. As a rule of thumb, the time you have to wait to see information is equal to how far behind you are. If you can see yesterday’s sales figures today, you’re only one day behind. If it takes you a month to see a full accounting of your expenses, then you’re a month behind the curve in controlling those expenses.
Knowing where you currently are in relation to where you’re going is part of any journey. I can’t tell you how to get to Chicago if I don’t know where you are now. In the same vein, you’ll never know if you’re living up to your budget if you can’t see your actual numbers compared against those budgeted figures.
You’ll obviously know at the end of the year (or budgeted period), but by then it’s probably too late to exercise any effective control.
Make sure that you have a system in place to give you a quick comparison of where you are as it relates to where you want to be. If you’re halfway through the year and you’re not at 50% of budgeted sales, then you know it’s time to make a push. Data that compares budgets to actual figures is an essential bit of feedback that you’ll need to control your operation.
Make sure that the system that prepares this data is easy to use and timely. If the information is difficult to generate or if it arrives on your desk too late, you’ll be more likely to stop using it. If it’s not user-friendly and quick enough to make a difference, this is an issue you should address.
If you’re a sole-proprietor and there isn’t another decision-maker in your business, you can skip this session. But for the rest of us, it’s important that we share our financials with the people involved in the generation of revenue and expenses.
These are the people who are on the ground and driving the numbers that matter, so it makes sense that they understand what their goals are. This also serves to empower them in their positions as they come to understand their role in the success in the organization.
From a managerial perspective, it’s difficult to hold someone accountable to goals or standards if they were never aware of them in the first place. Information is key, and withholding information, more often than not, is detrimental to the progress of most operations.
We understand small businesses, and we know financial matters aren’t everyone’s area of expertise. If you’re interested in learning more about how Core Group can help your business thrive, contact us today.