5 Keys to a Successful Budget

Creating and making business decisions according to a budget is key to business success.  While business leaders could argue on the essential items and/or the order of those items, here are my five keys to a successful budget.

1. Comfortable Format– The Budget should be in a format that is most comfortable to the user(s).  Whether you prefer to use a pencil and paper, a spreadsheet program such as Microsoft Excel, or a more sophisticated software such as Quickbooks or Quicken, the budget should be easy for you to create and update.  If it is not, the odds of you and your business using it regularly are low.
2. Simplified Categorization– One of the biggest mistakes made by companies (and individuals doing a self or family budget) is over-complicating things.  While it is admittedly difficult to decide which categories to monitor and how small/micro or big/macro those categories should be, this step is extremely important.  To a large degree, it will determine how easy it is and how long it takes to manage the budget.  For example, tracking “Office Main Line”, “Office Fax Line”, “Office DSL’, “Cell Phones-Sales Team”, “Cell Phones-Management”, “Support 800 Number”, and “Mobile Internet Access” each as separate items/accounts would be a lot more time-consuming than if you just had a category “Phone”.  One way to have the best of both worlds, would be to have mini-budgets.  If, for example, you thought it was important to at least monitor these micro-level categories, you could have “Telephone” as the budget category, with a mini-budget that lists the makeup of that category.  Doing this is a great idea because it also adds a platform for..
3. Assignment and Accountability– A budget does no good if nobody is assigned to managing it and nobody is held accountable for deviations.  A member of the team should be in charge of making sure that her budget is managed properly and there should be clearly defined rules and ramifications.  To accomplish this, there must be..
4. Timely and Efficient Reporting– To help department heads effectively manage their budget, the business needs to provide information in a timely and efficient manner so that they can make decisions and changes quickly.   The quicker the results are relayed to managers, the better.  But having the right information in the wrong format is of little use.  For example, if monthly results are finalized in three business days (extremely quick according to any metric), but they are in the form of a printed hard-copy, managers will have a hard time analyzing the information and making necessary adjustments.  What are they going to do, jot down notes and hand-write suggested changes or reasons for deviations?  So, having the information presented quickly, but also efficiently, is important.  Going back to our earlier illustration, if the information was provided in a spreadsheet, managers could quickly gauge the reasonableness of their budget, looking at such things as monthly averages, and if necessary, revisit their earlier assumptions.  Then, ultimately they could collaborate with other department leaders and business executives to recalibrate the budget and make quick adjustments.  This is made possible if the budget model has a..
5. Complete Information Loop– Creating the budget is important.  Getting performance information quickly is vital.  But completing the loop and getting any necessary adjustments back into the system is absolutely crucial if the budget is going to ultimately drive business decisions.  One way to accomplish this is by creating a dynamic spreadsheet (or access database, even) that allows managers to change the budget by as easy a method as a simple stroke of the keyboard.  I’ll discuss great ways to do this later when I talk about Performance Dashboards.