Implementing the Budget

In an earlier post, some of the reasons why companies are always going over budgeted expenditures were discussed. Also in a previous posting, some of the pitfalls of planning a budget were discussed. See Do You Budget Like the Government?  Now let’s look at an intermediate step, implementing the budget.

First Things First

Before you can ever hope to implement a budget and realize any benefits from having one, you must first make a conscious decision to actually use the budget. Don’t laugh. This is one of the most commonly missed steps. So many companies develop a great budget yet fail to actually use it to accomplish their goals. See Why You Never Hit Budget. So be deliberate and get everyone involved to commit to actually using it as a guide to spending.

Profiting from the Budget

When a budget is being developed, you project expenditures based on what you expect to happen as your plans are implemented. If you actually look at what you have budgeted before you make any expenditure, you have an opportunity to consider once again if it is really necessary and if this is the best price you can get. A classic example could be something like a purchase of office furniture. Do you really need this particular item, and if so, can you buy used to save money? Anything you can cut out that does not prevent you from achieving your goals will positively impact the bottom line, and more importantly, it improves your cash position.

Wow, We Saved Money. Now What?

Okay, just because you were able to save some money by not making a expenditure or by buying used, you don’t have to let the money saved burn a hole in your pocket. Often you will hear someone say, if we don’t spend what we have budgeted we’ve lost the approval to spend, so we have to spend it this year. No you don’t. What’s wrong with coming out ahead? Along that same line, it is not a good idea to get in the habit of saying, “Well, we were under budget this year, so we will just carry that forward and spend it next year.” That is setting you up to spend what you don’t need to spend. Each budget needs to stand alone and each year expenditures should be justified anew.

Pretend it’s Your Own Money

In a sense it is. If you own or work for a company, it is in you best interest to help that company survive. That means you are better off if your company remains financially strong. One of the best ways to do that is to actually use the budget. As you do so, look for any opportunity to spend less than budgeted and save to produce more profit and more cash.

What have you found helps most in implementing your budget?

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As always, your comments are welcomed.

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