| More so than ever business owners and managers | | | | targets, then that whole process in essence is a |
| are inundated with information - computers, other | | | | failure of a specific party, i.e. management, operating |
| technologies and of course the internet have given | | | | staff, sales perhaps, etc. |
| management the challenge; that challenge is simply | | | | As we all know, creating budgets and then having |
| 'What quality information do I have to cope with | | | | forecasts fail is generally because there are real world |
| business success and growth - how do I use that | | | | reasons for variance to the targets that were |
| information?' | | | | planned |
| We all probably know some companies, large or small, | | | | Technically speaking accountants and finance staff |
| that are probably 'over-budgeting and over analyzing | | | | usually have responsibility for budgets. They also play |
| data? | | | | a key role in score-carding the budget. Naturally |
| To be done properly traditional budgeting and planning | | | | management has to then determine why variations |
| should probably be started months in advance of | | | | happened, and if they are negative, what could have |
| deadlines. A great time to start is of course before | | | | been done to avoid those variations. |
| the next fiscal year. What is the business trying to | | | | Budgets are valuable for the following reasons: |
| do via this process? Well, it is trying to predict, for | | | | They provide valuable input and allow management |
| lack of a better word, next year's financial | | | | to set the tone for moving forward on specific |
| performance. Normally this is done on a month by | | | | initiatives. Although expensive to sometimes prepare |
| month basis. In larger companies of course there is | | | | re: time, meetings, manpower, etc they can provide |
| even more detail, i.e. by subsidiary or division, | | | | a true focus on what problems need to be tacked in |
| department, etc. | | | | advance. Another value of budgets is they assist in |
| We have all heard the term 'garbage in, garbage out | | | | providing accountability for various managers and |
| '. This is a very relevant term in budgeting, in that a | | | | department heads. They often become personal |
| solid budget, or budget process will involve the effort | | | | motivators re goals, compensation, etc. |
| of all responsible, both owners and managers, and | | | | Yes there are some ' dangers ' in budgets - |
| responsible managers. Great companies put a lot of | | | | expectations set too high, data and accounting |
| discipline into this process. | | | | inadequate - therefore poor budget quality, they |
| Budgets have value because they become a plan of | | | | might have no flexibility built in, they might not take |
| action in effect. Budgets become truly valuable when | | | | into account external factors outside the company. |
| they get commitments from the various stakeholders | | | | However, on balance, budgets, sophisticated, or |
| re: performance, targets, goals, etc. We can fairly | | | | basic, provide a solid method for business owners to |
| safely make the statement that if a business has a | | | | monitor financial health and plan for future growth. |
| solid budget process, and then fails to meet those | | | | |