How to maintain your commitment to following a proactive budgeting process that acts as a financial plan to keep your business on track.
Budgeting is something that often gets shoved to the back burner. If your business is like most others, then you know how easy it is to make the commitment to proactive budgeting—but then let other things take priority. (There’s only so much time in a day!)
We don’t have to explain the importance of creating a budget that aligns with your business’ strategic plans and ongoing operations, but the day-to-day activities involved with running a business sometimes take over. As a result, budgeting becomes reactive (or forgotten) instead of proactive.
The best advice we can offer is to stay on track. Don’t lose focus. Be sure to maintain your commitment to creating a budget that will act as a financial plan to keep your business on track.
There are seven steps you can follow for more proactive budgeting.
1. Ensure Accurate Accounting Information and Controls
You can’t make good decisions without accurate information. You’re just making lucky guesses.
Ensure that your accounting is accurate, timely, and allows you to drill down for details when needed. This gives you a better understanding of your business’ financials, reduces surprises, and helps you maintain control. You need good financial controls and processes to minimize mistakes, avoid being taken advantage of, and maximize your profits.
Using monthly financial statements to compare current year vs. prior monthly current year and year to date will assist in the proactive budgeting process.
2. Set Specific Sales Goals
Sales goals should be consistent with the type of sales that make up your marketing or business strategy. They should identify who, what, when, where, and how. Hold your sales staff accountable, and don’t let them decide how much they can sell. Management should determine pricing and terms. Any price concessions should require management approval. Monitor salespeople frequently and reward those who meet or exceed the goals you set.
As an alternative to waiting for the sales department to produce, consider an acquisition to gain more revenue and possibly additional salespeople.
3. Build in Accountability
What does your company really need to drive a successful business? Accountable employees. Hold your employees accountable for business performance, cost control, and productivity by setting goals for them and providing additional training as needed.
Consider challenging your employees by using a book such as Traction: Get a Grip on Your Business by Gino Wickman, which introduces the Entrepreneurial Operating System (EOS).
4. Focus on Net Profits
A business is formed to earn a profit and increase the wealth of its owners. If a company is not profitable, then it will ultimately fail. Management should be rewarded based on bottom-line results, not sales or gross margins.
If the company doesn’t make a reasonable profit, then management doesn’t get an extra reward.
Challenge your profit performance by using goal-oriented EBITDA performance in your monthly financial statements.
5. Break It Down and Pace Yourself
Take pride in your business and believe in the dream—but remember to set realistic goals. Overstated growth expectations can make the budgeting process a waste of time. Consider an acquisition to kickstart your realistic goals.
Don’t get overwhelmed. Take current trends, new projects, strategic initiatives, and the changing environment into consideration. Evaluate your needs and take it one line item at a time.
Let your budget serve as the roadmap for your business to meet its profit goals, cash flow, and continued overall growth, along with informative monthly and year-to-date financial statements.
6. Take a Fresh Look
Do you know why so many budgets miss the mark? Beyond the proud owners who aspire to see greatness in short order, the real reason so many budgets miss the mark is because they’re not given proper attention—and the creators are too close to the situation. Are you missing the mark, too?
While it may seem like being close to the situation would serve as a great benefit to the proactive budgeting process, many times, a good budget needs some outside perspective on a monthly or quarterly basis.
That is why your CPA can be a great resource for you during the budget planning process. They can also walk you through discussions to enhance your profitability.
Your CPA will know quite a bit about your business (depending on the relationship), but they will also be far enough removed to ask questions you may forget to ask. Make sure you’re working with a CPA who isn’t always a “yes” CPA. Your CPA should be able to say “no” when they need to! It’s a good thing to be challenged by your CPA.
Sometimes someone who hasn’t been looking at the plans and the numbers every day can provide valuable input on the budgeting process and point out details that could be costly if missed.
A CPA can provide a wide area of expertise and business advice. Their exposure to so many types of businesses and a variety of business needs helps improve your business plan and proactive budgeting process—and a better plan often leads to greater success.
7. Build a Better Budget to Get Better Results
It’s easy to put off budgeting because it takes time and resources, and it doesn’t immediately show much of a return. Are you happy with your company’s financial success and your personal success?
The best businesses take the proactive budgeting process seriously and get better at budgeting each year, which can also help your EBITDA performance.
The best businesses I work with are the ones that are able to deal with the unanticipated because they follow proactive budgeting processes and have a budget in place. A successful business has a forward-thinking mindset when it comes to company cash flow, profits, and EBITDA.
Jeff Bronswick is managing partner and CPA at Bronswick Benjamin PC.
