Do You Budget Like the Government?

If you keep up with the state of the U.S. Government’s finances, you will understand the title of this article. It has become all too common to hear the debt limit is being increased again.

Your Business is not the U.S. Government

You knew that of course. However, many businesses budget and spend like they are the government. Of course, a business cannot just keep increasing its borrowing limit. At some point creditors will say, “Enough!”

Something has got to Give

In a previous post I discussed how businesses often get off track because they don’t understand that the budget is a tool to control spending. I will not get into that discussion again, but if you are interested you can find it here: Why You Never Hit Budget. This discussion is not about the use of the budget, but rather about the budget process.

We Need a Map

Surely you’ve heard this saying: “If you don’t know where you are going, any road will get you there.” – Lewis Carroll. Well, if you don’t plan (budget) where your money is going, it will go where you didn’t plan. Unfortunately, you won’t know what hit your business. Just like you use a map to plan a trip, a budget is used to plan your spending. When planning a trip you look for areas that could cause delays, seek shortcuts, and also look for opportunities to do additional things. All the while, you are aware of the time constraints of the trip. Likewise, with a budget, you are looking for pitfalls (that could delay your progress and cost you), seeking ways to streamline processes and reduce costs, and identifying opportunities. Again, all the while you are keeping a running total of what this is going to cost. Just like a trip plan, a budget gives you a road map to reach your destination.

What is the Destination?

A budget that you actually have agreement on and follow keeps you on-track. It prevents you from doing things that the government does like raiding one area to fund someone’s pet project or borrowing because you couldn’t say no.

In the budgeting process, the destination can be comprised of several things. For example, you may seek certain goals for profitability, sales growth, cost containment, inventory levels, and cash flow. There are of course other targets you may identify, but you must have clear target destinations (goals).

If you aim at nothing, you will hit it every time.” – Zig Ziglar. I believe Zig Ziglar is correct, but the question is did you hit something worth hitting? Don’t forget, as part of the budgeting process, identify you targets (goals). Hmm, maybe that would work for our U.S. Government?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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