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Blog: Business Finances
 The "B" word…budget
Budgeting is like losing weight, you know you should do it but it's easy to ignore or so you think. Eventually, you'll figure out, ignoring the process is expensive. Without planning, cash flow becomes a problem which leads to debt or missed opportunities. Since we don't know what the future holds, laying out a plan is a far better choice than hoping everything goes well. A budget is an important tool. It's one of the best ways to manage risk.
Not only do you need a budget but you need it done the right way. So often, I find that the accountant issues a budget. That is the WRONG WAY to prepare a budget. I'd rather not have a budget than put the accounting department in-charge. Think about it, who is responsible for bringing in revenue and spending money? Operations, sales and management. The accounting department is an administrative function that should be used as a tool to help gauge how the company is performing. Developing a budget is a group effort. Every company leader has a role:
President = lead the decision making process. How will the company be run over the next year? Will their be a push to increase sales? What should the operations/sales managers expect? What should be expected of them? I've participated in many budgeting processes; the best one includes the President giving each department head/manager a financial goal or expectation. It's up to the manager to figure out how to get there.
Department heads (product/operations managers or whoever is in control of running the company) = develop the details. Department heads should have an expectation from the President. It's up to them to decide out how to get there. With the help of the company accountant, each department head needs to determine revenue by customer/source and expense by category. Never set a revenue figure without knowing, or at least having a solid idea of how you're going to get there. Expenses are typically a percentage of revenue. Some expenses are fixed no matter what changes. The accounting department should help identify these differences.
Accountant = guide the budgeting process. Most likely a first draft will be issued by the accounting department. That might be a copy of the previous year's results or a blank format or an attempt at a first pass. The accountant helps set realistic goals, provide training and manage the overall process. Some type of software is critical, at a minimum use Excel. You need more sophisticated software if there are multiple department heads or multiple versions of the budget. The final version must be approved and used on a monthly basis to comparison against actual results.
Requiring management to take ownership in their budget leads to better results. Ownership means goal setting which means hard work and eventually success. A final note, budgeting can be done any time of year. Typically, it's done on a fiscal basis but that doesn't mean it can't be updated or started in the middle of the year.
posted on: 3/1/2008 11:30:00 AM by Tracie Utter
category: Finances
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Business Finances
by Tracie Utter
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About Tracie:
I am a Professional Organizer that focuses on financial information although I organize homes as well. Prior to organizing, I worked as a CPA for public and private companies as an auditor, controller, project manager and more. Now, I organize full-time with a focus on office organizing (both home and corporate), managing paperwork, managing Quicken/Quick Books and banking. I help people understand what type of paperwork/computer files to keep, how long to keep it and how to store it.
Tracie's Website:
utterlyorganized.net
My Favorite Websites for Small Businesses
- KY Society of CPA's
There is a section "For the Public" that has information related to starting a business. There's also a calendar which indicates when certain financial information is due, such as, taxes.
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1-877-251-8435
www.OnlineOrganizing.com is a service mark of Bradford, LLC.
