We all have been there: budget season! Maybe you and your team dread it, maybe the team goes through the motions to get it done or maybe you see it as a great opportunity. I am with the last group that sees budget season as a great opportunity to reflect, plan for the coming years, months and weeks, analyze, and learn. Most importantly: this is the time to nail it! This is the moment to truly build a document that can guide your business and be a foundation for better management decisions.
Here are steps you can't afford not to take:
1. Make it a byproduct of your objectives
You need to know where your business is and where you want to take it before you start a budget. Define target markets or key investments that will have to address by the budget. Identify the market forces that have been affecting your business and use that as a driver to your budget. Think about what departments or areas will need resources and which ones can function with few resources. When it comes time to make choices on how to allocate resources or what to focus on, the strategic objectives defined for your business will guide this process. Your decision making process will become more data driven.
2. Define regular and irregulars
Just like in grammar class you have your regular and irregular verbs. This time, we will talk about items. Regular items are those that are easy to predict. They do not change frequently or you know what the change is on the rate, price or cost. Irregulars are the items that are harder to estimate because historically have been more volatile and you have less control over them. This would not feel like grammar class if we didn't have the exceptions. The hybrid items that can behave as regular or irregular depend on the circumstances. My favorite example is sales! If your business relies on long-term contracts that define annual volumes, commitments and payments, then you are on regular land. If your company's business depends on walk-ins or discrete orders based on market demand, for example, then you are on the irregular territory.
3. Define drivers
There are a lot of different drivers affecting the many components of your budget. In the case of overtime is hours worked, which depends on volume and the headcount available. In the case of Workers Compensation, the company's cost varies depending on the loss history, payroll amounts, industry where business operates, etc. Benefits can vary tremendously depending on what a company decides to offer or has to offer to remain competitive.
4. Research, research, research
It is important to be aware of your surroundings. Check for announcements on price changes for utilities in your area, discuss with your advisors the ongoing rates for employee pay and benefits, insurance premiums and look for projections and predictions related to interest rates, exchange rates and other economic indicators.
5. It is alive!
Budget and projections should not be static documents that we create and then forget. Constantly check assumptions against reality and reforecast. Use variances to budget to make business decisions. If your business is incurring an ever-higher cost in overtime, maybe it is time to consider a chance in headcount to balance the workload. Change plans according to actual results and the ever-changing environment.
Go out there and make this your best budget!
• Gabriela Rodil , MBA is CEO of Gabriela Rodil & Co. in Oakbrook Terrace.
heads her consulting business focused on transforming business to achieve greater financial and operational success.