The concept “budgeting” is as appealing as “dieting” appeals to a lot of small-scale business owners. They interpret it as being forced to compromise or do without, rather than making it a measure of what they can accomplish. Entrepreneurs who are successful interpret it as something entirely different. They see it as more of an outline of a route, not an elaborate management instrument or trick. They view it as an essential process to assist them in determining the direction they would like to take their business and the steps they have to take to get there.
The business of not having a budget is similar to the pilot of an airline taking off without a map or directions. I know this sounds ridiculous, and you might be thinking that a pilot wouldn’t do this? It could be a disaster, would it not? In my experience, it’s like what many small business owners are doing.
Successful entrepreneurs don’t depend on luck to get to their goals. Plan, plan, and establish precise goals and budgets in order to reach them, and they continuously check their progress. They review their forecasts often whenever new information comes to their attention or when they have to alter their expenditure, etc.
If you’re still not convinced, I’ve listed three persuasive ideas on the reasons you should plan your budget:
1. The Road Map
If you’re dissatisfied with the performance of your company, It’s probably time to make a change. If you’ve not created a plan of action or established specific goals, What do you know when to arrive? You’re likely to continue wandering between one thing and the next, depending on luck, improved market conditions, and an improved economic outlook.
“If you do not know where you’re going, you’ll end up somewhere other than where you started.” Yogi Berra Yogi Berra
Successful entrepreneurs don’t depend on luck and wander around aimlessly. Don’t. Start with the first step and assess the place you’re currently “at” to design your route and build your business.
Your financial results will usually give a clear image. For most entrepreneurs, it’s going to cause warning signs; however, for others it’s a sign that they should review their approach.
Acknowledging and accepting the current state of your life and where you’d prefer to be in the future is essential in your progress. It is necessary to recognize that your “numbers” are just a way to mark the road on your route. Examining your numbers with a keen eye shows your current performance, and also provides factual information, and removes all ambiguity, excuses, or opinions.
It’s sometimes not what you want to look at! It’s like looking at photographs from the past and comparing yourself with what you’re like today. This might not be the most pleasant appearance!
In many companies, the numbers are usually related to revenue as well as return on investment liquidity and fixed costs, as well as profits margins, variable costs, etc.
Successful entrepreneurs examine their figures and ask themselves difficult questions about what they’re saying to themselves. Questions like:
* How satisfied am I with the income that my business has been able to offer me?
What areas do I need to concentrate on in order to (further) improve my results?
* What’s my break-even point?
What is the financial strength of my company?
* What numbers was I anticipating, and what numbers should I be expecting to observe in the near future?
If you’re able to be able to answer these questions, then congratulations because you’ve just laid out where you’d like your business’s future to be. You’ve developed your roadmap for success.
2. The causes and symptoms
What is more important to treat? Causes or symptoms? You’re probably aware that sales don’t arrive at your door or fixed expenses and overheads drop because you’d like them to. They’re a result of the cause – your sales, as well as fixed costs and overheads, occur as a result of the choices you make as well as other relevant variables.
“Symptoms that you think real appear to be irrational because you interpret them in a singular way and want to be able to identify them immediately.” — Jacques Lacan
The process of budgeting incorporates various actions, such as strategy and session of question and answer. It aids in identifying warning indications (such as cash-flow deficits) and the root cause and aid in determining the underlying signs. Examples of the factors that affect sales could include:
* The number of inquiries (or leads) or calls to the telephone;
* Percentage of inquiries (or leads) that turn into customers
* Recurring sales that customers have received;
* Average amount of sales per product or service;
* Sales and marketing channels you utilize
* And so on.
They are commonly referred to as “sales drivers.” The revenue you earn from sales mainly results from these drivers. The overheads of your business aren’t any different.
For instance, the rent you pay will likely be affected by the location you are in or because you need more storage space to keep enough inventory. The cost of your salary could be spiraling out of control because of the extra overtime incurred due to rush orders or staff who aren’t as efficient as they could be. Evidently, it’s the driving force that determines your sales and overheads, not the reverse opposite. The process of budgeting requires you to resolve these drivers for business and measure them in a way that is as crucial as the budget itself.
What’s the reason, you might ask? If you’ve identified the causes and the causes, you’ll be able to concentrate on identifying those that produce the best results and address those that aren’t. Remember Yogi Berra’s quote. You are the one who decides your own destiny. Like the airline pilot, you’re the one with the wheel. You have the option of choosing which direction you’d like to steer your business.
It’s crucial that you know exactly where you’re heading and have a map and directions road map. Successful entrepreneurs are aware of these things and appreciate how budgeting can help them gain more clarity about the path ahead.
3. Accountability, accountability, accountability.
Budgeting isn’t about bean-counting; it’s more about being accountable for your accomplishments. If you are aware of the critical factors that affect your financial performance, then the next step is to do something about them.
The budget you set will not simply create your sales goal. However, it can assist you in identifying and quantifying the factors which will. If your revenue target is $240,000, this number shouldn’t be your primary concern. The identification and quantification of the drivers should be your primary focus. For instance, a telemarketing campaign that is designed to promote a company’s brand monthly search engine optimization service could have the following drivers:
* 5,000 calls over 90 days
* 8 percent of calls lead to the creation of new clients (“conversion rate”);
* Customers are subscribed for 12 months
* The cost of service costs $50 per month for each customer.
Note that 5k x 8 twelve months $ $100 = $240,000.
These numbers should provide you with more clarity and clarity. You can take this a step further by making an individual accountable for each.
“Accountability produces responsiveness.” – Stephen Covey.
Successful entrepreneurs keep scoreboards. They are interested in knowing if the goals are being met and if the results are being met. Finding the driver and then measuring targets for each one of them can alter behavior and the way they think and focus. This will assist in developing questions like:
We made how many phone calls get today? Are we on track to reach 5000 by the end of the quarter? If not, then why?
* What amount of training and/or training do I need to offer to “close an agreement?”
• Do we possess the correct amount of people in a position to provide our service?
* Can we earn good margins?
It is evident that substantial benefits can be seen in the process of preparing it. It gives direction and a clear focus. Once it’s been developed, it is a special tool that is able to assign individuals accountable for the targets that are selected.
If you’ve made the decision to take back control of your company and want to boost its financial efficiency, create your roadmap. In the end, “If you don’t have a clear idea of where your heading, then you’ll end up somewhere other than where you started.”
Mark Gwilliam FCCA is the director and founder of his personal Chartered Accounting firm. He is also the CEO and founder of Chakra Partners, an internationally recognized finance and outsourced accounting business.
He takes his responsibilities seriously and exemplifies Chakra Partners’ unwavering dedication to helping clients to achieve extraordinary outcomes. He is a renowned expert with a wealth of experience, an passion for building client-centric teams, and is adamant about the execution and design of efficient business processes. He previously worked for Barclays, Arthur Andersen & KPMG across a variety of disciplines.
He provides advice to executives and entrepreneurs of small businesses on complex problems such as strategies as well as risk management, managing shared-service centers, operations, and running profitable enterprises. He blends his passion for sharing his expertise with his demonstrated ability to provide practical and practical solutions to clients. He’s published several books and writes regularly on business-related writing.