DALLAS — Mention the word budgeting and most business owners’ eyes glaze over.
The thought of Excel spreadsheets and long meetings in windowless conference rooms is enough to make anyone search for the nearest exit. This is particularly true for entrepreneurs and business owners who get excited about growing a business and solving day-to-day challenges, not diving into the minutiae of supply costs.
However, I find that when properly done, budgeting can be a truly therapeutic exercise that gives us as business owners a comprehensive understanding of our business, and reduces the uncertainty and stress associated with running a business.
In talking with many business owners, one of the biggest stresses they face is uncertainty, particularly related to money. They often feel like they don’t have a good handle on their future sales and cash flow picture, or they may be unsure of how they will handle big future capital expenditures.
Most of this uncertainty comes from the fact that business owners don’t take the time to sit down and map out a budget in realistic detail.
I often hear resistance to the exercise of budgeting. Business owners say they don’t have the time to create a budget, or wonder what the point is when things change so fast that your budget often becomes obsolete after the first month of the year.
Much of this stems from the traditional notion of a budget as a static document that is created once, right before the start of the fiscal year, and then only revisited at the end of the year to see how the company did against that budget.
I will submit that a budget in that context is not a very useful document. But by not doing the days of hard work in budgeting, business owners are choosing a year of uncertainty and stress. Not a very good trade-off.
Modern budgeting is a much more dynamic and useful exercise. Rather than creating a budget for the start of the year and looking at it at the end of the year, modern budgeting involves creating pro forma budgets that are dynamic and can be reviewed (and adjusted) in the context of your organization’s ever-changing needs.
In addition, these budgets can be built into the day-today operation of your business so that you are constantly measuring how you’re doing against your budget goals.
Having this consistent meter of your financial performance takes away much of the unknowns in running your business.
Check back Thursday for the conclusion.
Have a question or comment? E-mail our editor Dave Davis at [email protected].