Budgeting Through a Business Acumen Lens | Paradigm Learning

Budgeting Through a Business Acumen Lens

Posted by Paradigm Learning on February 21, 2019

Do you define “budget” the same way as Merriam-Webster’s dictionary?

  1. A statement of the financial position of an administration (as of a nation) for a definite period of time, based on estimates of expenditures during the period and proposals for financing them
  2. A plan for the coordination of resources and expenditures
  3. The amount of money that is available for, required for or assigned to a particular purpose

In Good to Great, Jim Collins points out that budgeting typically exists to decide how much money to assign to each task/activity/initiative, to manage costs or some mix of those two. He goes on to say that companies that make the transformation from good companies into great ones use budgeting as a discipline to decide which areas “should be fully funded and which should not be funded at all.”

So instead of thinking of your budget as a to-do list, try thinking of it as a “stop doing” list.

Other things to consider:

  • Be realistic
    Develop your budget based on past results and future projections. Use the last 3-5 years as a starting point. Then consider items that are more likely to change in the coming period. According to Forbes, using past information and adjusting for predicted variances is the way to go. You should also recognize that some unexpected events will occur, so allow for contingencies.

  • Take a holistic approach
    Make sure you don’t look at individual budget line items without taking a holistic approach. If you think revenue is going to rise 5%, decide if your costs will go up by the same amount or not. Also, remember that many line items are interrelated, so if you change one, you’ll probably have to update more.

  • Measure and change
    Throughout the period, check your budget versus actual amounts and make changes as necessary. This will help you confidently make decisions along the way.

  • Training
    Take a look at your organization and your industry, and don’t forget to consider which skills your workforce will need to compete. Plan for leadership, technical, communications, compliance, sales, and other training.

  • Communicate the budget to your employees
    Every member of your organization impacts the budget. They can help increase revenue, decrease expenses, or manage your assets more effectively. Communicate your budget throughout the organization so that everyone is working together to meet your goals.

Take the above tips into account when budgeting, and you’ll end up with a realistic, fluid budget built to help your workforce and organization grow.

What budgeting tips would you add?

See the impact this kind of mentality can have across an organization in our eBook, Business Acumen Anecdotes

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