You worked hard to create your budget for 2018. Do you use it as a tool to help guide your business during the year? It’s your view about how your business was going to do this year. If everything goes according to plan, you will reach your goal.
But business isn’t stagnant. It doesn’t stay the same month after month. Your customers face similar challenges, and as their businesses change, yours will too. So, if you are going to actively manage your business, actively managing your budget should be part of it.
Here are four approaches to managing your budget:
- Track variances – You projected this year’s results, and you’ll wait till December to see if you made it. Each month, you use a spreadsheet to compare your actual results to your budget.
- Update with your monthly results – Each month is different than the plan you created. You can’t change the past. So, you update your year-end expectations by replacing this month’s budget number with the actual results for the month just ended. This way at the end of January, your budget shows 1 month of actual, and 11 months of budget. As each month passes, your budget becomes an indication year-end results with the YTD actual folded in.
- Adjust your budget as business changes – Your business is affected by changes in the business climate. As customer orders go up or down, as your suppliers change the way they sell to you, you update your budget for how those changes will affect your year end results. This way, your basic plan is still in place, but has been updated for how the business climate affects you.
- Aggressively revise your forecasts – Your budget isn’t a yearly activity. It’s a tool to regularly drive your business forward. As plans for your business change, you modify your budget to more accurately project your yearend. New customers, product launches, pricing changes all affect the outcome. This way, your budget always reflects your current view of your business, and your yearend.
There is no right way to manage your budget. The issue is really one of how you use it. Is it a benchmark that you measure your business against, or is it a tool that you actively use to manage your business and plan for the year? Either way, if you need help to make it a more useful tool to help grow your business, we’re happy to talk about it.