Don't just drift through the marketplace.
By Victoria Downing.
A budget is one of the most important tools to help you and your company succeed. It’s your plan for profit — the road map that you’ll follow throughout the year with a planned destination of profit. Business owners who work without a budget just drift along allowing the marketplace to dictate where they end up.
Creating a budget makes everyone on the team think through business issues, learn to compromise, and learn about every department’s impact.
When we talk to our clients about budgets, a key part of the discussion covers the concept that the budget is not a static document. Top company leaders use the budget as a guide — updating it and communicating it to their teams. Building a successful business is everyone’s job, as is using the budget to keep the company on track.
Each month, everyone on the team at our company meets to drill deep into the financial metrics of the business. The reports we review are:
- Budget compared to year-to-date (YTD) actual
- YTD actual compared with the previous year, same period
- Forecast for the end-of-year results, which may vary greatly from the original budget
The most important of these is the forecast, where we discuss strategies and tactics for improving results. Working as a team to create improvement strategies is beneficial in several ways:
- Five heads are much more valuable than one, and the ideas that come from my team have proven it.
- Everyone has what consultant and author Jack Stack (The Great Game of Business) calls “a stake in the outcome.”
- The company enjoys improved employee retention.
At a recent meeting, one key manager said, “Can you imagine working for a company and not knowing what was going on? I can’t.”