A Budget is so much more than just a financial plan.
Every time I tell a client that he needs to prepare a budget, I know
the reaction will be a groan. "All that work and what good
does it do?" My response is equally predictable, "If you
think that you are neither doing it right or using it right"
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A Budget is so much more than just a financial plan!
Every time I tell a client that he needs to prepare a budget, I know
the reaction will be a groan. "All that work and what good does it
do?" My response is equally predictable, "If you think that you are
neither doing it right or using it right"
Certainly preparing a budget takes a little work, but done right it
is not a major chore, and the benefits are enormous. The way I
suggest you attack a budget is to look on it as a statement of what
you want your business to do. I mean, that is what it is all about
really, you are in business because you want to achieve something,
more wealth, more independence, more security. So you create a plan
that gives you what you want. In creating this plan, you start to
generate an enormous wealth of information. Information like, "What
must my gross margin be?" , "How much business must I do before I
make a profit?" and "How much capital do I need?". This kind of
information is invaluable in helping you make the right decisions
day to day.
Perhaps the most important aspect of having a budget is that you
know if you are on track to achieve what you want, and you don't
have to wait till your accountant gets involved in April next year.
By preparing budget versus actual reports which most accounting
software like QuickBooks will do automatically, you can determine
not only whether things are on track, but also what is causing the
problem if you are not. This ensures that you have the capability to
take corrective action, and to do so by attacking the correct
problem.
With all the benefits I have listed above you would think it was a
slam dunk and no-one would operate without a budget. And I think the
case is well proven, but the best part is that the benefits given
are just the beginning. Used correctly, the budget becomes a major
part of your management process, and is a key element in defining
goals and objectives for your people. In so doing it is laying the
groundwork for the holy grail of personnel attitudes,
accountability.
Simplified, the management process comes down to four steps:
Tell your people what you expect
them to do;
Measure their performance;
Give them feedback on their
achievements, both good and bad; and
Reward them or discipline them as the case may be dependent on that
performance.
Think about it! Having a budget and using it as an integral part of
your management process achieves each of the above three first steps
and gives you, the owner, the tools to complete the fourth. Makes it
a no-brainer doesn't it!
The Author
After 25 years consulting to small and medium sized companies,
Mike Anderson, principal of Train Me To Be a CEO
realized that the most important part of his work was training the CEO,
and the reason he was such a good consultant was that he did that very
well.
Trained as an engineer, he became a CEO of
a midsize corporation at the age of 35. After a spell at Harvard
Business School he entered the world of consulting.
3. Ongoing mentorship. Begins with a minimum two
day one on one, but continues with monthly or quarterly follow up
sessions. (Smart and probably Best!) .
References
A New England Contractor
"Mike Anderson has been working diligently
with the upper management team at (our firm). Mike is extremely
knowledgeable and has an exceptional way of dealing with many different
personalities. He has worked very closely with the Sales Team to
impress upon them the importance of using a consistent method of
estimating. He was instrumental in restructuring our accounting
procedures."
