Budgeting

Budget (noun): an estimate of income and expenditure for a set period of time

Do you have one? Do you refer it to regularly? I use the budget as a tool. It's the roadmap of a company's strategic plan at a moment in time. When managing a business, I carry it with me everywhere and refer to it to make all important decisions. I review actual performance to the revenues weekly and to the expenses monthly, then reforecast the budget each month based on the most current information. This way, I am constantly aware of how a business is performing against it's projections, and I stay nimble should the strategy need to change quickly.

Imagine this: you have a budget that "feels" good; it matches your strategic plan. You're projecting to make a nice profit next year. The budget is made up of calculated forecasts based on information you know is true, and it makes educated projections of expenses. A month has passed, and you call a monthly meeting with the higher-ups of your company. You have a report showing your actuals compared to the budget, and the variance between the two. You then proceed to have a productive and proactive conversation about each line item with any notable variance, and the team races back to their roles with the most important financial-impacting activities to pursue.

Examples might be "we didn't hit our wholesale number this month," which prompts sales or operations to analyze and explain how they plan to make it up, or "online sales are up this month," prompting some high-fives for the web team's recent blogger collaboration success and a drive to do more, or "cost of goods sold are up this month," pointing to production delays and having to air in product as the culprit, and a deep conversation about how to handle upcoming delays and future production strategies to minimize the financial impact.

All of these situations create accountability to financial performance and projected sales or expenses, and visibility to management to shift resources and strategy accordingly.  

An active budget has other benefits, too. Are you ready to quickly react to a customer request for a huge, custom order? Or a Japanese distributor request at a deep discount? Your budget can help guide these decisions since it's a numerical reflection of your strategic plan and constantly forces you to answer the question "what do I want my business to look like?" 

By doing active budgeting, you'll always be able to intelligently answer the cocktail party question "so, how's business?"