Year-end always brings a significant list of financial tasks to complete. We start thinking about closing the books, organizing taxes, selling investments, enrolling employees in benefits and establishing budgets.
If you list is pretty long or one item in particular seems daunting, it might be that you procrastinate, which is unpleasant. One of the most daunting tasks business owners face in the tasks they have to do is establishing their budgets. In fact, so many are determined to put it off that they've done just about everything to avoid it.
Here are some of the excuses I've heard, and why they just don't hold water.
Excuse 1: Budgets are too specific; I can't be expected to stick with my initial estimates for a whole year. In fact, though, even though you've created a budget, it doesn't mean you've done so in stone. The budget is yours and no one else's. It's not a legal document that binds you to any promises, nor have you made a blood oath (I hope) that you would honor it to the letter. In fact, some estimates say that almost 80% of companies who create budgets don't change them even a bit during their fiscal year. However, that attitude is not realistic. Not only can you change your budget, you should change it as circumstances make it necessary. You can also budget for a shorter time frame if that works better for you, such as per quarter instead of for the entire year.
Excuse 2: I won't be able to react as flexibly to an unforeseen crisis if I have a budget in place. The reality is that companies that create budgets tend to be more flexible and more proactive than companies without budgets. When you're actively tracking your progress toward a specific goal you can tell much earlier on if you've hit a snag. You can react while the situation is smaller and more manageable, and sometimes you can even see a problem before it occurs.
Excuse 3: The budgeting process is too complicated and time consuming. Well, this is actually true for too many companies, but it doesn't have to be. Many companies spend months agonizing over their budgets and devote upwards of 20% of management's time to their creation. Although a certain level of detail is needed if the process is going to be effective, budgets can be fairly simple. And the time you invest in planning upfront is never wasted; it's time you save down the road reacting on the fly to decisions that need to be made anyway.
Excuse 4: My industry is in flux and ever changing, so I can't commit to a budget. In fact, every industry is in flux at every moment. Your industry is the same as every other, and you need a budget regardless. Of course, you can't predict unknown events, such as if gas prices will rise, whether laws will be passed that will impact your profit margin, or whether you'll need to hire new staff, but you can still use a budget to plan and set goals over the long haul. For this, you need to plan to take action at given times, which is under your control. You need to be able to look at your business with a critical eye and decide what you want to achieve in the next 12 months. If you can't do that, then it's time to sit down and figure out why that's true.
Excuse 5: Budgets don't mean anything, because everybody just plugs numbers in that will paint the best picture possible. It's true that if you create a budget that isn't based in reality and is based upon pipe dreams, you're going to set yourself up for failure instead of success. In fact, one Internet poster likened the budgets to pornography, calling them, "a fantasy about how the author would like the world to look, having a relationship to reality as the world, designed to too late, stimulate and motivate the reader, but ultimately resulting in a sense of alienation and despair." If this describes your budget, it's of no use to you. Your budget should be based in reality.
Excuse 6: I have a budget, it's just in my head not on paper. Keeping mental note of your company's projects, numbers and expenses is overambitious. You may be able to do it for a while, but eventually your business reaches a size that makes it impossible for you to keep in touch with all of the details. If you have managers and employees working for you, it also prevents them from taking on some of the ownership and accountability for results with you. Even if you don't feel like you're big enough for a budget right now you will be one day. It's never too early to start a good habit.
Remember, budgeting is simply planning. It forces you to step out of the day-to-day details and look strategically at your business, to take stock of where you are and to set a goal for where you want to be. And let's face it, without a formal tool in place that nudges you to action, that kind of planning is likely to take a back seat to all the other daily crises that demand your attention.
So what's your excuse? Did your dog eat your budget? Do you need to vacuum your overstuffed sofa so that you won't have time today? Did your mother-in-law coming to visit from Idaho? Or are you ready to stop making excuses, sit down and get to work?
About the Author
Author: Margot Brandlin is a Minneapolis Bookkeeper and freelance writer who writes for OWL Bookkeeping and CFO Services. Owl has a Bookkeeper in Minneapolis ready to help with your business finances.