Once you’ve successfully put together a budget for your business, it’s easy to think that you can simply sit back and relax. But budgets are ever-changing things. Working to improve your business’ budget can help your company reach its goals, move to the next phase of growth or help to steer it out of bankruptcy or debt. If your company’s budget isn’t working as well as you had hoped, there are a few things you can do to improve it so that it actually works for you.
Make Your Budget Align With Reality
In many cases, your business’ budget was put together using last year’s figures and estimates for what the year ahead would hold. While that method sometimes works, in some instances, it’s not the best option. For one thing, your company might hit a rough patch and see lower sales or income one year. For another, it’s possible that the entire market will suffer, affecting the amount your company earns.
The good thing about budgets is that you can adjust them as needed. If your budget is using income estimates that are nowhere near what your company is bringing in, it’s worth it to sit down and change them so that they better match what your business is actually earning.
Reassess Your Budgeting Method
If your company is struggling to stick with its budget, it could be the method you are using is out of alignment with your company’s needs, not the actual figures. Budgeting methods include traditional budgeting, zero-based budgeting, top-down budgeting and bottom-up budgeting. With the bottom-up method, different departments submit their budgets for review. Those budgets can be either approved or not by the people at the top of the company. While this method can work for larger companies, it can also lead to a lot of waste, as departments might overly-cushion their budgets.
The top-down method has the company’s CEO and other business leaders create the budget, with limited or no input from departments. The method can be useful for a business that wants to keep an eye on expenses, but can also create problems when certain departments feel that they aren’t being given enough to spend.
While the traditional method of budgeting involves using figures from previous quarters or years to create a budget, the zero based budget starts fresh with each new budgeting cycle. Zero based budgeting can help smaller companies better allocate their cash and assets, but can become tricky the larger the company is.
Know When or How to Cut Costs
If your company’s budget isn’t working and it’s difficult to make ends meet, it can be a simple matter of figuring out where to trim your expenses. Although bringing in more income is usually the preferred way to improve your business’ budget, in some cases, cutting costs is the most expedient option.
There are several ways your company can cut costs to improve its budget. One option is to switch to vendors that offer the same or similar products for a lower cost. If you wish to continue working with the same vendors, another option is to approach them to see if they can offer you different or better payment terms. If you’re facing a lean month, it might be helpful to see if a vender will let you switch to net-60 payment terms or if it will offer you a discount for paying early.
Focus on Goals
Your budget should help your company achieve its goals. Instead of looking at your budget as simply numbers on a piece of paper or screen, look at it as an action statement. If you need to spend X amount on a certain expense, what can your business do to make sure it brings in that amount of money each month? If you anticipate bringing in X amount of revenue, what can you do to increase that amount by 5 or 10 percent?
If your budget isn’t working for your business or if you think there is room for improvement, New Direction Capital can help. Contact us today to learn more about improving your company’s budget.
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