When you hear the word BUDGET, what’s the first thing that jumps into your head?

If you’re like most people, the first thing that comes to you is “What am I going to have to cut out that I would really like to do BUT there’s no room in the budget for it!”

When this type of feeling is injected into the budgeting process, everyone can become negative towards this really important part of running a business.

So how can you make sure that the overall process is not lost in a sea of negativity?

Make sure that the overall context for budgeting is within the context of the vision for your company. This means that when people are constructing their budgeting worksheets they don’t have an over emphasis on expenses.

In all budgeting processes there are always more expenses that you could spend on and so you must be really careful that this is not the overriding context of doing the budget. (i.e. cutting of expenses)

Language is really important and if you as the business owner allow yourself to be drawn into this negative type of conversation it will quickly spread throughout your organisation.

Remember that the words that come out of your mouth have a multiplying effect through your business.

Your employees often repeat what you say, use your name as the source of the comment and before you know it, there is an amplification of your every word throughout your business.

So if you have lots of budgeting worksheets then perhaps they need to carry a positive slogan with them that repeat the positive side of your business.

May be you have a really positive image that is really easy to add to all the spread sheets to keep people in the right frame of mind as they go through the process.

This may sound a little far fetched but I have noticed that when a business gets negative on something it takes real intentionality to change the atmosphere and bring it positive again.

Do you have any experience if this you would like to share?

Do your eyes glaze over when it comes to the numbers of your business?

Do you become quickly disengaged if someone talks to you about preparing budgeting worksheets?

If you have never done anything like this before then I suggest you start with the basics and then you can move on to the more complex parts of budgeting worksheets.

So as a business owner, when you think about the future of your business, what is the most important number to you?

Is it income or sales? Most likely it is something to do with inflow of money because an important part of a business is making money so that you can grow and keep the business alive while doing it.

So this is the most important part of your budget which is not what many people think of when they think of budgeting.

When I use the word budget with most people the first thing that pops into their head is, “What am I going to have to deny myself? What will I not be able to have because I’m on a budget!”

Most people associate a budget with cutting or controlling expenses rather than stretching towards higher and better income!

So the first place to start with budgeting worksheets is to look at your proposed income. I find that most business owners are more positive when it comes to increasing income than decreasing expenses. Is this true for you?

Approaching any task with a negative frame of mind will only bring a negativity to the whole task and likely you will never want to complete it because who wants to focus on a negative!!

If budgeting is another way of working out what you CAN’T have instead of what you CAN have then it will be an overall negative experience.

As the business owner you will affect the atmosphere around any task that is done by your business and it is so important when thinking about the future to be positive.

So the first step in developing budgeting worksheets is to focus on income and the positive side of building and developing your customers.

What’s your experience on this?

Small business owners are some of the most resourceful people I know because they have a knack of making something out of nothing. If they are unable to master this technique they often fail and go back to work for someone else.

As a result they are reasonably spontaneous and take each day as it comes, knowing that within the next month or so they’ll need to make changes to their business just to keep up.

So when I first talk to them about a budget I get comments like:-

“Why waste my time on something that’s going to change anyway”

“My accountant told me to do one of those once but I never understood why”

“I don’t really use my current numbers so why spend time trying to predict the future”

So the real problem with budgeting worksheets is that the business owner can’t see the point in them and therefore doesn’t want to waste their time.

So to get off base one we have to find a reason to even do budgeting worksheets!

So let’s take an example.

You want to go on holiday.  Now how would you go about getting ready to go on holiday?

Would you wake up in the morning, put a few clothes in a bag, put the bag in the car and start driving?

This might really excite you but for many people this would be the best journey to a nightmare holiday because

a. you would never know if you had the right clothes
b. you would never know if you had the right bag and
c. you would never know where you might end up

Going on holiday for most people requires SOME planning. Now different people go about organising a holiday in different ways.

For instance, there are people who plan every last little detail of every day and then there are others who plan very little so they can have maximum flexibility but everyone at a minimum plans the time off for a holiday. Otherwise on the appointed day they would get up and continue going to work. At a minimum they plan what they going to do even if this is NOTHING.

Now let’s assume that you’re going on holiday with 2 other families. Do you think that it would increase or decrease the amount of planning required in order to have a good time?

Obviously with more people comes more options to be considered and the more planning that’s required to make things successful.

Now think about your business.  How many people are involved? Not just the employees, but customers and suppliers as well. How much planning do you think is required to make things successful?

The obvious answer is that you will need some planning.

Budgeting is only another word for planning the future. So budgeting doesn’t need to always be a twelve month period although many accountants would suggest this given they work to a tax year and most of their work revolves around a successful twelve months.

Budgeting could be for the next day, the next week, the next month or even the next year.  The whole purpose of budgeting is doing some planning for the future which helps the business owner be more successful by making best use of their resources

Using budgeting worksheets is only planning the numbers for the future activities in your business and the best part about it is that you can then show other people and get them to help you achieve the results.  If you never show the worksheets to others then they’ll be shooting in the dark trying to help you!

How do you go about your budgeting?

I’ve been talking a bit about budgeting lately. Now, before rushing into preparing your budgeting worksheets, here are five useful tips which will help you get the best value out of the exercise.

1. Purpose

   Many business owners never prepare a budget because it is too fearful for them and they worry more about whether they’ll achieve it than the whole purpose of budgeting in the first place.

   Budgets are not a rod for the back of the business owner. They are an opportunity to provide overall direction for the next year for a business.

   Without some sort of goal a business normally finds a level of equilibrium and then stays there for ever.

 

2. Timing

   Budgets are prepared at a point in time with the best information possible at that time. They are never perfect or completely right but they give a goal for the business to aim for.

   In small business particularly, it is important to be nimble and to maintain the ability to adapt to changing conditions. As a result budgets have to change during the year.

   However make sure that you don’t change the goals to match up with your current experience. Use them to draw you towards higher levels of achievement

 

3. Context

   The context of any budgeting worksheets is the future. They are never about the past even if they’re built on business history.

   As a result they are predictive and the very good worksheets are those that allow the user to enter information as a series of inputs and the worksheet does all the number crunching and comes up with the answers.

   This allows the user to run scenarios through the budgeting process and come up with budgets that have been tested before finalisation.

 

4. Content

   The value of a budget is the ability to match actual beside it during the year. I have seen many budgeting worksheets that are prepared in a way which is impossible to match actual against.

   Standard costs and standard pricing methodologies are often used in budgeting worksheets and it then is difficult to match actual back against this information.

   You may have this problem any way when trying to prepare theoretical costing information with the actual information coming from your financial records.

   Remember that a budget is only valuable when it can be compared to an actual and the content of your worksheet should make this as easy as possible

 

5. Audience

   If you are preparing the budgeting worksheets then remember that others may want to look through the detail to see what you’ve done.

   This is always a good thing because human beings make mistakes and it is always good to have your work checked by an independent person.

   In designing your worksheet make sure the information is easily understood and headings, totals etc have descriptions that others would understand.

   Sometimes a few moments putting in the right descriptions on a worksheet can increase the value to other exponentially.

What’s your experience on preparing budgeting worksheets?

As a small business owner you may have never prepared a budget because it seemed a very difficult thing to do with no real value to your business.

But having a budget will allow you to focus and develop goals which will lead you to more and more success.

Preparing a budget for the first time can be a difficult task even with the help of computer programmes such as Microsoft Excel. It’s easy to get lost in the detail and never get the right perspective on your budget.

So here are three tips which will assist you in building the right context for your budgeting worksheets

TIP 1
Make sure that you have as much analysis on your sales and income as you do on your expenditure.

Many profit and loss accounts that I see have 1 line for sales and 100 lines for expenses. While it is very important to know exactly what you’re spending in your business, I believe it is equally important, if not more important, to know the detail of where you are getting your sales from.

So you may wish to break down your sales by:
a. product or product group
b. major customers
c. geographic spread

There are many ways you can do this but budgeting worksheets are incomplete if they do not include a meaningful breakdown of the sales.

TIP 2
Make sure you include figures for your working capital.

Working capital (inventory, accounts receivable and accounts payable) is an area that can often soak up cash in your business. Often this is where money is hiding in your business without you even realising it!

Many small business budgets are prepared without even thinking about the trading terms in the business and how this will affect working capital.

You may have a highly profitable business but be unable to succeed because you haven’t worked out the money tied up in funding the working capital of your business. No budget is complete without solid calculations on the levels of working capital.

TIP 3
Make sure you include Capital Spending.

Capital spending such as plant and equipment, motor vehicles, computers and furniture is sometimes left out of budgeting worksheets because the budget is confined to a simple profit and loss account.

If your budget does not include a balance sheet then you may forget about these items altogether and find you run out of money half way through the budget period.

As a business owner you likely want to grow your business which will mean investing in capital equipment. If you leave this out of your budgeting worksheets there is a major section missing from your budget.