In many organizations, one of the most hated seasons is budget season. Your past performance and ability to stay within projections are carefully analyzed. You are also responsible for developing every detail of your budget for the next year and justifying that amount. Often you are not just justifying your budget to your own boss, but also justifying your amounts to his boss or even a panel or board.
Why do good organizations focus on budgets so heavily? There are some basic principles at work here that everyone, big or small, needs to take into consideration:
- Spending decisions are easier to make when you have decided in advance when you have the time to work through the logic of how to run the business without the emotional pressures.
- A budgets is really a goal. Knowing what you expect from your business in terms of sales, revenue and expenses helps you to focus on the activities that are going to make your business the most successful.
- The difference between a goal and implementation sometimes is accountability. By continually comparing your performance to your budget, you can hold yourself accountable and keep motivated.
- Budgets can also be a communication tool to your employees. By laying out the expectations of the business in terms of black and white numbers, your team can better understand what you expect of them.
Often managers don’t use the budget tools they are given wisely and end up losing their department a great deal of money. Business owners make the same mistake.
Dave Ramsey says that every dollar should be put down on paper, on purpose every month. Just knowing your budget numbers for each month and not walking blindly will make a large impact in your success.
You have to know where you stand before you can know the direction to take.