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Using budgets to improve performance

“Forecast: to observe that which has passed, and guess that it will happen again.” (Frank Hubbard)

“Money doesn’t talk. It swears.” (Bob Dylan)

It is often said that you cannot manage what you cannot measure. Budgets allow all operations to be understood and measured, increasing control and the likelihood of success. This toolkit explains how to use budgets to benefit your business.
The great benefit of budgeting is that managers gain a realistic vision of the development of their business. This in turn provides greater control in key areas. Another benefit is the ability to monitor trends over time. Analysis of a twelve-month financial performance with sub-totals every quarter can highlight:

• Escalating costs that are either occasionally or consistently higher than expected.
• Sales performance: did the business do as well as expected? If not, why? Was the sales profile as expected or did it result from unique individual factors?
• Changes in profitability against budget as well as against targets for each month. Falling sales volumes, falling prices (or rising discounts) as well as rising costs could cause lower profits and budgeting will illuminate these root causes.

This toolkit explains how to get the greatest benefit from business budgets.

Length: 8 pages

Contents:

The Benefits

Action Checklist: Budgeting
• Set the scope of the budget
• Budget early
• Identify the appropriate budget period
• Seek advice and communicate
• Include a cash-flow forecast
• Be consistent
• Act on the budget information
• Prepare different scenarios
• Focus on profitability

Avoiding Problems – this includes techniques to avoid potential pitfalls and problems with budgets and forecasts.  Key Questions

Dos and Don’ts

Things You Can Do
• Set the budget parameters
• Discuss and research the business
• Obtain feedback on the first draft
• Finalise the budget
• Explain the budget

Further Action

Further Information