Chief Financial Officer, ShuBee®
Budget can sometimes be a 4-letter word in accounting but unfortunately it is a necessary evil for any business. If you’re not forecasting your spends ahead of time, be prepared for surprise expenses and unpredictable P&Ls. So unless you’re a thrill seeker and enjoy the roller coaster world of bottom lines, it is highly recommended that you start using budgets.
Ok great! You’ve created your budgets, now what? Here are 10 do’s and don’ts for making sure your budget is effective and accomplishes its main goals:
1. DO plan an annual budget before your fiscal or calendar year begins. This will be your cash flow road map for the new year.
2. DON’T start from scratch every time, use historical spends as well as anticipated growth to plan for the coming year.
3. DO involve all appropriate personnel in the budget process. Budget creation is not the sole task of the Accountant. Each department should be involved in planning their budgets.
4. DON’T overthink it. If your company is new to budgeting, any budget is better than no budget.
5. DO monthly or quarterly forecasts so you can better control cash flow as well as predict your short term bottom line.
6. DON’T forecast and forget about it. Reconcile and compare your forecasts to your actual spends. Analyze variances and use any discrepancies to help forecast future spends.
7. DO keep up with your total spend for the year versus your total annual budget to make sure you are staying on track.
8. DON’T go out and purchase elaborate budgeting software. If you’re a small company, Excel with the use of formulas and charts will work wonders.
9. DON’T freak out when unplanned expenses arise. There is no crystal ball in budgeting, no matter how well you plan, unforeseen expenses will pop up.
10. DO incentivize or reward department heads for staying within budget. When you connect brain to pocket book, everyone stays in tune with making the best financial decisions for the company.