{"id":364,"date":"2018-09-25T20:20:31","date_gmt":"2018-09-25T20:20:31","guid":{"rendered":"https:\/\/fintrepidsolutions.com\/?p=364"},"modified":"2024-10-03T17:44:14","modified_gmt":"2024-10-03T17:44:14","slug":"6-keys-to-an-effective-budget","status":"publish","type":"post","link":"https:\/\/fintrepidsolutions.com\/6-keys-to-an-effective-budget\/","title":{"rendered":"6 Keys to an Effective Budget"},"content":{"rendered":"<p>As we near the fourth<sup>\u00a0<\/sup>quarter for calendar year businesses, most small and mid-size companies are starting to form plans for the new year.\u00a0Many companies go so far as to have an actual budget, however too often those same budgets lose either their usefulness or worse still, provide a false sense of either panic or security.<\/p>\n<p style=\"text-align: justify;\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-365\" src=\"https:\/\/fintrepidsolutions.com\/wp-content\/uploads\/2018\/09\/image002-300x193.jpg\" alt=\"\" width=\"300\" height=\"193\" srcset=\"https:\/\/fintrepidsolutions.com\/wp-content\/uploads\/2018\/09\/image002-300x193.jpg 300w, https:\/\/fintrepidsolutions.com\/wp-content\/uploads\/2018\/09\/image002.jpg 400w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/>Especially in the case of growing businesses, change is at the very core of many companies.\u00a0 This means that last year\u2019s assumptions may not work anymore.\u00a0\u00a0 Perhaps keeping gross margins flat and adding 5% to last year\u2019s payroll costs is not a good representation of the upcoming year.\u00a0 A solid budget must be a living document, not just something that sits in a drawer.\u00a0 To do that, it must be measurable against actual performance, retaining the ability to meaningfully evaluate positives and negatives over time.\u00a0 And in a good budget process, companies should constantly be asking an important question \u2013 why?<\/p>\n<p><strong>1) Revenue \u2013 Building Blocks<\/strong><\/p>\n<p>At its core, what really drives revenue in your business?\u00a0 And based on that, what does that mean for the new year?\u00a0What will happen to the price per unit of sales?\u00a0 Volume sold?\u00a0The number of customers \u2013 both existing and new?\u00a0 So many financial items trickle down from revenue, a thoughtful, deliberate evaluation here is essential.<\/p>\n<p><strong>2) Infrastructure \u2013 What is Needed to Support the Revenue?<\/strong><\/p>\n<p>In order to drive the thoughtful revenue numbers above, what is needed from your people, equipment and other resources?\u00a0 Do you have the capacity to reach the numbers needed?\u00a0 This could mean more salespeople to generate new customers, more operations people to execute on the product, or another piece of machinery (and people to run it) to increase throughput.<\/p>\n<p><strong>3) One-Time Expenses and Purchases<\/strong><\/p>\n<p>It could be new software, a recruiting fee for a big hire, a new piece of equipment or legal costs, but large, infrequent expenses and purchases, and more importantly their effects, are often overlooked in budgets.\u00a0 Where possible, the timing of these large outflows should be planned for to a large degree to ensure the business and its resources can absorb it.\u00a0 Is simply taking the expected total and dividing its cost over 12 months an effective way to plan?\u00a0 Possibly, but it can also result in negative consequences \u2013 it is likely best to plan for some lumpiness in the timing.<\/p>\n<p><strong>4) The Unseen Costs<\/strong><\/p>\n<p>As we have talked about the trickle down effects in the budget, it is easy to forget unseen costs in the business.\u00a0 For any business with debt, new purchases, working capital needs and\/or changing interest rates can all have an effect on the cost of capital for a business.\u00a0 What about carrying costs?\u00a0 If sitting on more inventory, what is the impact of that?\u00a0 Maybe supplier or customer terms are changing \u2013 these can all have a sneaky impact on numbers moving forward.<\/p>\n<p><strong>5) Get the Team Involved<\/strong><\/p>\n<p>A sound budget process needs input from the key team members involved in executing it.\u00a0 Even in small businesses, getting three or four people involved can ensure a thorough process with multiple viewpoints and evaluation from different perspectives. A solid budget needs input from the CEO, sales, operations, and finance.<\/p>\n<p><strong>6) Can You Justify it? <\/strong><\/p>\n<p>To properly utilize a sound budget, your team should be measured by it, you should be making decisions with and against it, and banks and other external stakeholders should be able to scrutinize it, with readily available answers.\u00a0 A budget that is too aggressive will only lead to frustration, from both leadership and the team on the ground executing.\u00a0 A budget that is too conservative could lower expectations and create lost opportunity.<\/p>\n<p>An effective budget should be well thought out, all-encompassing and reasonable.\u00a0And when it is so, the ability to truly measure against is an essential key to good management decision making.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As we near the fourth\u00a0quarter for calendar year businesses, most small and mid-size companies are starting to form plans for the new year.\u00a0Many companies go so far as to have an actual budget, however too often those same budgets lose either their usefulness or worse still, provide a false sense of either panic or security. [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":1652,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,15],"tags":[],"class_list":["post-364","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blogs","category-budgeting-and-forecasting"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.9 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>6 Keys to an Effective Budget - Fintrepid Solutions<\/title>\n<meta name=\"description\" content=\"As we near the fourth quarter for calendar year businesses, most small and mid-size companies are starting to form plans for the new year.\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"6 Keys to an Effective Budget - 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