6 Tips to Effectively Manage Your Business Budget
Much has been written about the importance of building a budget to manage the financial affairs of your business. And the premise of all that prose is correct: a budget is the most effective way to achieve your profit goals. But the assumption seems to be that once you have a budget, your work is done. It’s not.
When you have a budget, you have to know how to use it. Here’s a checklist of six basic ways you should be using your budget.
6 tips to manage a business budget
- Be smart. Consult your budget before you commit funds. It seems a logical assumption: You have to know what you’ve budgeted to spend before you make a spending decision. But a lot of businesses don’t do this. Look first, then commit.
- Be open. Honesty about your budget is a perfectly legitimate response to a vendor that demands a price you consider excessive. If you can’t spend more than is in your budget, tell the vendor. This isn’t indiscreet. And the vendor may want the sale enough to meet your constraints.
- Be balanced. If you absolutely have to spend money for something that’s not in your budget, remove or postpone an equal amount of money elsewhere in your budget. This is called a trade-off. Spend a little more here, a little less there, and make things balance at the bottom. Very rarely does every dollar have to be spent the way you originally planned.
- Be frugal. If revenue doesn’t develop as you planned, underspend accordingly. In the end, your budget is about the bottom line. And if revenue is less than you thought it would be, you likely don’t need to spend as much to support those nonexistent revenue streams. So figure out what money was designated to support the revenue that didn’t come in—and don’t spend that money.
- Be timely. Scheduling is not trivial. Don’t spend ahead of time. If you must spend before you planned to do so, postpone something else in the same time period until you can catch up. This is another trade-off.
- Be tough. “Oops!” is not a good excuse for overspending. If you inadvertently overspend, drop something else that’s in your budget—or at least defer it until you can make up the difference. This is another form of trade-off, best avoided by referring to the first step in this list.
A shared responsibility
Most CEOs would agree that these steps make a company budget more effective; that is, most CEOs of companies that actually have budgets, which is not most companies. Most CEOs will also say their managers should do a better job of budgeting. Some might say these CEOs should do a better job of training their managers. Me? I’m just sayin’.
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