A budget is not a forecast that you can put together on the weekend while at the cottage enjoying the view of the lake. It must be a result of some coordinated input and effort by the management team. It requires some time and thought, just like every other important project for the company.
Preparing a budget also takes some practice. No matter how difficult it is to predict the future, your accuracy will improve; as will your control over the results as you actively use the budget. The budget will become one of the important tools to manage your business.
Any business can be budgeted. The key is to strike a balance between time invested and forecasting accuracy. Just remember that anticipating the future will help to make it happen.
You need both profit and cash flow targets. These two measures can be very different and require different methods to control them. Many companies have had fabulous profits but were forced out of business due to lack of cash.
Budgets can be a powerful tool to improve the business. Frequent assessment of results compared to the budget can help the team assess how they are progressing, and often how to attain improved results in the future. It will help the team improve their ability to anticipate the future and budget better as the business moves forward.
By Ken Goodwin
Financial Management
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