Last year you thoughtfully constructed a budget. You painstakingly evaluated your projected income and expenses. You pored over your cash flow projections. You wiled away the hours getting the best snapshot you could of your business in the year to come.
Well, the 4th quarter is here. How did last year’s budget fair? How often did you revisit it? Did you keep it up-to-date?
If you’re like most companies, you probably haven’t touched your budget since you constructed it. Or perhaps you’ve occasionally looked at it to see how you’re doing on your budget vs. actual.
Your Budget Needs to be a Living, Breathing Document
Your budget should be looked at and constantly revised throughout the year. By keeping your budget up-to-date with changing business conditions, you get a better sense of how to manage your organization moving forward. If the assumptions you made when you constructed your budget are no longer valid, the numbers in your budget have no meaning. For this reason, you should continually make adjustments to keep the document as accurate and viable as possible.
Use Your Tools
Most accounting systems, like QuickBooks, have a tool that allows you to evaluate your budget vs. actual. Most organizations we’ve encountered do not use this functionality, but it is incredibly powerful and can be very illuminating. If your accounting software doesn’t have this functionality, it’s possible to use a tool like Excel to perform similar types of analysis. While using Excel to analyzing budgeting may take more effort, it can still be worthwhile.
Iterative Budgeting Makes Life Easier
The more often you evaluate and revisit your budget, the more skilled you will become at constructing them. You will develop and use better assumptions in subsequent years’ budgets by carefully tracking where variances are likely to occur.
The better your budget becomes, the better you’ll be able to manage the expectations of your internal and external stakeholders. Active, iterative budgeting also allows you to make adjustments. For example, if your actual revenue is falling short of your budget you can reduce expenses and/or increase your sales and marketing budget to get your actual revenues back in line.
If you need help constructing a budget, or would like to learn more about how tools like QuickBooks can make your budgeting process easier, please contact your Zinner accounting expert.