Yeah, we get it.....setting budgets is boring
What's the point in budget setting, when things might change?
Well, here's 3 great reasons why you should set a budget, even if you do find the process boring and are uncertain how the next 12 months will pan out
1. The budgeting process provides focus
The budget setting process shouldn't just be about banging a few numbers into a spreadsheet. It should be about answering questions, such as:
- What will I need to invoice to bring enough to support the lifestyle I want?
- Is my sales/ new business target realistic, or is there no way I can possibly find that that much new business?
- Have I got the right team (enough team members) to hit those sales targets and deliver the work needed?
- Can I afford to do the projects I wanted to next year?
- What should I invest into marketing? Does it look realistic v my new biz target?
When we sit down with our clients in a board meeting to set the budgets for the upcoming year, this type of thinking always sparks some really good debate about the direction the business is going in and what we'll need to do to get us there.
Once the budget is pulled together, everyone in the team has absolute clarity over the numbers we need to deliver in the coming months.
2. budgets are your early warning system
Tracking your performance each month against your budget (part of management accounting), isn't just about reporting the history of what you did/ didn't do last month.
Looking at your performance in this way is actually an early warning system about what the future might hold. Miss your sales target 3 months running and it could be wise to revise your budgets (called re forecasting) to take account of lower revenues going forward.
What does such an adjustment do to your predicted outcome for the year? Do we need to make any other changes to make sure we stay on course?
3. budgets guide you through the major financial decisions
"shiny new thing" syndrome often hits business owners. They get offered the chance to attend the "can't be missed" conference where they can exhibit to thousands of potential customers, or there's a chance to buy the latest piece of tech
I'm not for one minute saying doing either of these things is bad.....BUT.....consult the budget first. If we do this, what's the impact on the budget? Will it help or hinder us reaching our goals this year?
I often meet business owners who shun the budget and think it's not for them. Interestingly, most of the successful clients we've worked with over the years all had a budget in place and used it pretty much in the way I've described above. Co-incidence? I don't think so. Good quality discussions in Board and Senior Management meetings around decision making and planning, whilst referencing "what's in the budget" is, in my opinion, one of the ingredients to a successful business