For business owners and operators, it is frustrating to realize that the budget that you and/or your staff prepared in the fall of last year looks now, in the early stages of the New Year, to be veering to the left or right of reality. In either case, whether prospects are way better than your plan projected or look to fall significantly short, your budget is like a bad haircut. It is painful to put your eyes on, not likely to be taken seriously for the rest of the year.Don’t make the mistake of abandoning or ignoring your budget going forward. To do so is to fall into the mindset that the budget is only an annual exercise, that, once complete, is fixed and must stand up to the battering winds, scorching sun and thunder and lightning that the upcoming year will bestow. In reality, whether sooner or later, your budget will show wear and tear as the year progresses. An ongoing maintenance program can help your budget become the robust management tool that justifies the substantial effort invested to create it.It is important to remember at this juncture the real purpose of your budget. It is not to predict the future, nor to merely set forth the financial goals for the upcoming year, though it may in fact accomplish both. The budget process is an exercise whereby ownership and management perform a thorough self-examination of the business. They must understand its place in the market, its strengths and weaknesses, financial resources and liabilities, available human capital, and most importantly, the vision that defines ownership’s ultimate desired outcome of the company’s existence. Once this understanding is achieved, the budget reduces to numbers and narrative the near term strategy to drive the vision forward over the ensuing 12 months. The more the budget is detailed, reasoned and documented, the better.
Preparing a proper budget is a complex undertaking, and the resulting product fragile and fickle. It needs to be revisited often, quarterly or even monthly, and recast whenever it is evident that circumstances have been altered and assumptions need revision. The budget documents management’s understanding of where the business is and where it intends to go. Persistent nurturing via comparison to actual results, thorough investigation of variances and reforecasting, enriches and deepens this understanding. It strengthens management’s intuition of the who, what, when and where of actions needed to forge progress. In short, the budget is a living, breathing management tool, and when bathed in ongoing attention, is always current and therefore becomes a self-fulfilling prophecy.
So what if it’s February and your budget is broken. Fix it, and invest the time and effort to keep it up to date throughout the year and beyond. It will yield significant dividends toward the success of your business.
This post was originally authored by Doug Lombardo