The most difficult things in any business is building a budget and sticking to it. Here are a few tips on how you can develop a budget that makes sense for your company and how to put systems in place to keep you and your staff accountable to it.
Many businesses create budgets that are unrealistic. The main reason most businesses fail to stay on budget is because it is unrealistic to begin with. The first step in developing a budget that is realistic is by looking at the prior period’s financial statements.
If you are developing an annual budget, look at how money flowed in and out in the previous year. If there were extraordinary or unusual expenses, find out why it was so. Getting a good grasp on how money was spent the prior year will go a long way in helping you develop a budget that you will be able to stay within in the following year.
The next step is to put systems in place to keep yourself and your staff accountable to your budget. The best way to do that is to split the budget up into monthly chunks. That way, if you or your staff can’t go over budget consistently without getting flagged. The actual and the budget should be analyzed every single month to keep everyone accountable.
If a department does go over budget, it should be held accountable. That doesn’t mean someone gets fired and it also doesn’t assume that the budget excess was necessarily a bad thing. It could just be an unforeseen, but necessary expense. In that case, it is legitimate, but it still needs to be acknowledged. If it wasn’t a necessary expense, it needs to be answered for.
If your budget is not split up into a monthly reporting routine, you will have departments and people who will certainly go over budget and no one will find out until the end of the year. This is a very common occurrence, especially with small businesses who don’t have regular reporting cycles.
Sticking to a budget is probably one of the most difficult things to do in any business. You can make it easier on yourself and your company by making the budget realistic to begin with, and putting a system in place for regular accountability.
