Budgeting

Budgeting is a lot of fun! Why? Because it's simply telling a story. That's all it is - a story you create and write. You become a "seer", predicting events and conditions which you really don't know whether or not will happen.

A story told in numbers. How do you create a story that you understand intimately, a living document which changes and flows and which creates tremendous confidence in executing a plan for the upcoming year?

Begin with fantasy - the ideal events you would like to see happen in the upcoming year. Who doesn't like to daydream? Cost it out. The numbers will tell you what's possible and what's not.

Then, the challenge begins - what is really possible? It's fascinating to create various scenarios based on assumptions of the future. (easy to record the alternatives in Excel)

This is where everyone needs to be on the same page - budgeting = assumptions about the future. There is nothing concrete about budgeting. It's not a airy fairy exercise either. Budgeting is the best "guesstimate" for the ensuing year - that's all it is - so relax, breathe and have fun with it!

With due diligence, you can come fairly close to a realistic budget based on current facts and anticipated economic conditions.

How do you prove due diligence? With a little exercise that most people don't do. They've been taught to write out a huge report - a lot of verbiage about their analysis, conclusions - blah, blah, blah - and in the end, too much time is spent on verbiage. So why waste the time? I know - because it's expected, the standard, whatever other explanation there is. Fine.

Produce what is required but for yourself, create another type of document which tells you exactly how you arrived at each and every figure.

It's simpler and much more effective to create detailed notes about each and every line item in your budget, proving your figures by outlining your assumptions and calculations in one document, line by line. Key word here is "notes"! If anything goes wrong, the detail is there. If economic conditions change, you can make adjustments. You'll be the hero because you can anticipate problems before they arise and take steps to minimize the impact or you can "make your wishes come true". And you'll learn a lot about yourself too - you'll learn how you think, where you can improve your work and assumptive processes, and what's real, and what's not. How? You'll have all your notes and calculations to refer to quick and easy too!

And that's why budgeting is really a lot of fun - every single month the comparison of your actuals with your anticipated income and expenditures for each and every month tell you what's going on - in numbers - you don't have to read pages and pages and pages of verbiage - it's all there quick and easy. And because you built the budget this way, you understand it very well. No one can stump you in a meeting! Isn't it fun to see how well your "predictions" come true?

Working with your budget as your benchmark is the greatest way to manage appropriately. Your comprehension of your department or business increases, you become far more aware of the global economic conditions, you can employ your creativity to resolve upcoming issues before they cause major problems, you can be in touch with every aspect of your business continuously - no surprises for you! and best of all, you can relax knowing that financial part of your role is solidly in your control. What a stress reducer!

There are so many benefits to good budgeting practices, it's behooves me to understand why people fear budgeting so much and why such poor budgeting happens in so many instances. Massive budget over-runs are either a lie, a cover up or someone who created the budget didn't understand the operations. Why would anyone be in charge of creating a budget who didn't understand the operations? Budget over-runs may happen because of an act of God or some catastrophe that simply couldn't have been foreseen such as an act of terrorism or conflict, etc., but outside of those incredibly unpredictable events, budgets should be on target. Reasonable adjustments should be anticipated but not wild swings.

In other words, a budget should be a living thing that is amended as more information is gathered but the amendments should also be sensible, rational and moderate.

Now, go budget and have fun!