A lot happens before ideas become solutions.
At ElixWare we want to bring you more than just great, affordable software. We want to let you know how and why we do what we do.
Our Ruminations blog will bring you insights into how we got here and some of the things we consider when trying to help you run your business. We hope it gives you a better understanding of how we strive to better serve your needs.
But who has time to create a budget during the holidays, or while trying to close out last year? Nobody, that's who. That's why you should try to finish next year's budget before the holidays. On Thanksgiving, let one of the things you give thanks for be, "I'm thankful I'm done with the budget".
Budgets can be tricky and time-consuming. But you don't have to tackle them all by yourself. We'll have more on getting help with your budget later in this post.
A budget is a plan. A plan of what you expect your business to earn and a plan of what you expect your business to spend. It's important to make the effort to get your budget as accurate as you can. No matter what your accountant says, it's OK if your budget is close enough as long as it's not so far off as to put your business in jeopardy.
Creating a budget is more than just an exercise. It compels you to evaluate your business. But your budget assumes everything will go as planned, and when was the last time that happened? To quote Eisenhower, "Plans are useless, but planning is indispensable." This applies to your budget as well.
But who has time to look back? It should come as no surprise when I suggest you do this right before you start next year's budget. This year may not be over yet, but you should have a pretty good idea how well your current budget served you by the beginning of November. If it helps, you can dress up as an accountant for Halloween.
What are you looking for when you compare your budget to your company's performance? Ask yourself these types of questions:
When reviewing last year, if your company's performance was close to your budget, give yourself some credit for doing a great job. It means you know your business very well, and/or you did a yeoman's job of sticking to your budget throughout the year. Also, be thankful you had no surprises that significantly affected your business.
don't do this: Some small businesses try to get by treating each year as though it is its own "project" — the project being "make it through another year".
Project budgets can't always show that they'll increase or even generate revenue, let alone have a return on investment (ROI). There are projects within your business that may only provide additional services to your clients (e.g., a client portal or redoing your website) which cannot be easily associated to increased revenue (let alone profit).
There are also projects that can improve morale, and indirectly improve employee productivity, but on the books show as pure expenses. These can include renovations, or upgrading office furniture or computer monitors.
It's very important for both of these types of projects to have a budget specifically because they will not have a direct revenue component. Staying within your project's budget, and timeline, is crucial.
do this: At scheduled points throughout the year, or when you're launching a project or initiative that was in your budget, take the time to refer to your budget. Your budget was created when you had a clear mind and a clear vision of what you wanted to do. Use it as a touchstone and an advisor to keep you on track (unless things have changed considerably).
If you have department managers, be sure to include them when creating the budget for their departments. Unless you're very hands on, your department managers' insights are going to be the guardrails that keep your budget process on track.
Many businesses have their department managers create a preliminary budget for their department. No one knows their department's needs, strengths and weaknesses better than they do. This can save you time and effort, as well as provide you guidance from trusted resources.
You can look at the general ledger expenses for the previous year to get an idea of what this year's expenses may be. But knowing how and why the money was spent is important too. To really understand the how's and why's of a department's processes, production and expenses, be sure to listen to your department managers.
There are a lot of online and software resources that can help you create your budget. When the time comes you can use your favorite search engine to find one that suits your needs.
You can see how just a few basic questions can quickly snowball. Once you've gone through this exercise by yourself, have a meeting with your department managers (and essential personnel) to ask them these questions. Many businesses have their department managers ask these questions in preparation for the group meeting.
Budgets are about business, which means — essentially — they are about money. But budgets are also about people. No forecasting models can replace the experience and insights of your staff. So, to insure your budget helps you turn a profit, make sure you include your team in the budget making process.