Companies using a calendar year to do their financial statements need to take this time of the year to do budgeting for next year. Budgeting? Why would a company need that? Just do their thing – sell and hope for the best? That’s NOT a good way to run a company. Not good at all. All the big corporations budget everything – sales, expenses by category, cash flow, etc, etc. And, they do it on a quarterly basis. Why? One, they want a target that they believe they need to hit and so they then plan what they must do to hit that target. And, secondly, they use it for accountability – to measure the performance of each subsidiary or department that fed their budgets into the overall budget. Planning and accountability.
Does a small business need that? You bet it does. I know all the excuses – “we’re too small, we don’t have time, we’re not sure how to do that. Well, there are people that can help you with that and they’re right here at SCORE. Don’t have time for planning? That’s a shame. Without planning you’re flying by the seat of your pants and just hoping for the best. That’s not a good way to run a company.
Take a day or two and take a crack at it. Look at prior performance. Do you expect it to go up, stay the same, or are you pessimistic about sales? Talk to whoever you need to talk to. Expenses by category? Go through last years details and see what expense you need to reduce, what expenses that probably need to increase. Before you know it, you’ll be done with the budget. Share it with associates in your business and get their thoughts. After all, it’s the workers who have to perform and meet this budget. They should have a say in its preparation. You don’t have any associates? It’s just you? They have a heart to heart with yourself and do it. Hold yourself accountable.
Without a budget, it’s like playing a ballgame and not keeping score. When asked whether you won the game or not, with no budget, no score, all you can say is – “I don’t know. We tried but I don’t know if we won or lost.”
- Written by Bill Ferguson, CPA, JD