What Can You Gain From Budgeting for Your Business?

Dear CFO:

My banker tells me I need a budget. But I know how to run my small business. Budgeting sounds like a waste of time to me.

What would I gain by budgeting in Portland?

---

This is certainly a common complaint and not just from small business owners, but from employees of large corporations as well. Frequently, team members view budgets as a painful and unproductive process. So, why bother with a budget?

CFO’s and small business owners need to bother with budgets because a good budget process supports the company’s goals and enables a company to achieve higher profits. Good budgets allow for a view of the financial future and in doing so, provide accountability for team members by making clear to them the fiscal expectations of their work.

Why Should You Budget For Your Business?

The ideal budget process sets the stage for:

• understanding the goals of the company, both short and long term,
• problem-solving and reaching goals creatively,
• identifying potential financial problem areas,
• setting financial goals for team members, and
• evaluating expected performance against actual to refine assumptions.

There are two common approaches to creating a budget. In a top-down budget, management defines the budget and sometimes over-rides assumptions built by team members or may force a team to accept cost reductions. In bottom-up budgeting, team members build assumptions accumulated in creating the total budget. In reality, good budgets aren’t strictly one or the other, but a combination of the two.

A good budgeting process requires management begin by conveying a clear picture of the company’s goals. Team members closest to the work often have the best understanding of what parameters will work and which ones won’t. They often provide the best insights into cost cutting, streamlining and revenue growth, which is why it’s usually in a company’s best interest to involve the team in the budgeting processes to some extent.

Good budgets focus on long-term goals within short-term financial constraints. Budgets set guidelines for the costs associated with achieving objectives. This doesn’t mean a quick fix, like simply adding 10% to last year’s actual numbers or taking 20% off the current budget. This means building a plan to meet a company’s objectives given the financial constraints of that company. It is the financial roadmap for the next year.

In short, whether you’re running a business in Portland or anywhere, you need a budget to get the full lay of the land. Budgeting falls into the best practices for business and it’s just as vital to your growth as a business plan. If you’re struggling with where to start your business budget, there are resources to help you begin. For those who are more vision oriented than number-savvy, bookkeeping is a great service to outsource. Find freelance bookkeepers on sites such as Upwork and FlexJobs.

Best of luck with your budget in Portland!