By Lindy Earl
So many people, in both business and personal lives, think of a budget as a 4-letter word. In truth, a budget is an incredibly freeing document that lends structure and credibility to your finances, again both professional and personal.
The reasons to have a budget are obvious, so you can spend money wisely and without stress. If you know what your costs are, and can approximate your income, you’re ready to write a budget. Even if your income is zero and you expect it to stay there for a year or more, if you know your costs you need to put pencil to paper. Budgets are very fluid documents so need not be written in pen. We’ll share some simple steps to get you on your way.
The first thing you have to do is review any current budgets. This will let you know where monies have gone in the past and you’ll be able to get a look at the corporate culture. If, for instance, money has always been put aside for lunches and holiday parties, you know you better budget for these. If the company has always given to charity, again, you better include a line item for this in a new budget. If no budget exists, you can move to step two.
Second, make a list of all your needs. Start with the obvious things like rent or mortgage and all utilities. Be generous with heating and cooling bills because you don’t want employees living a miserable existence and cursing the management because they’re expected to work in 64 degrees when it is old outside. This example is based on a true story of an old client of mine. When the wife came in she would increase the temperature to 67, but other than that, employees were expected to dress appropriately for a 64 degree inside day in the middle of winter. Yuck!
Make a list of all employees, salaries, costs associated with employees such as medical benefits, workmen’s comp, vacation and sick days, and expected raises.
Don’t forget capital assets that you truly need. If you need a new computer or some type of machinery, it belongs on this list. Do your best to make this list exhaustive because you won’t want to add to it later.
Once you have all your must-haves listed, create a list of wants. Some people put advertising on the wants list, but I’m a strong believer that Promotion belongs on the needs list. I believe car allowances are on the wants list but others believe they belong on the needs list. You again need to consider the corporate culture. If you ask someone and are told, “that’s the way we’ve always done it,” it’s not a good enough reason to keep doing it. I would not change the coffee budget. Removing coffee from an office can cause havoc and employee dissatisfaction. Make your decisions, possibly as a team with top executives, and be prepared to defend your position on needs versus wants.
You should have a nice long list now. You can create the list annually or monthly because it’s just a matter of dividing or multiplying. My brain thinks in annual numbers when discussing salaries and departmental budgets (marketing, accounting, operations, etc.), but monthly when discussing utilities and depreciation costs. Just be careful to be consistent.
It’s now time to group your information into cost centers. For example, Administration, Sales and Marketing, Further Education, Operations, Human Resources, Finance and Accounting, IT. You don’t care at all if budgets are equal or similar. That doesn’t matter at all and the information is private so this information shouldn’t be leaked. I can’t imagine the nightmares sharing this information has ignited—Ops budget is $50,000 this year, up 10%, but Finance has been decreased. Nobody needs to know this!
Next, and it’s very important, be able to support all monies requested. You need to tie every expenditure to a specific need. For example, $10,000 each for the ten listed Expos, not $100,000 for Expos. You’ll also want to tie budget numbers to clients as much as possible. When writing your budget, when you can justify a number with client needs, the request is more likely to stay in the budget. Never use a miscellaneous category.
At this point, your budget should be done. It’s crucially important that income be greater than outgo. There’s no arguing over this. If the numbers are upside down there are only two ways to fix the budget—increase income or decrease outgo. Yes, this is exactly the same in writing a personal budget. If you don’t and can’t increase income, then you have to start cutting.
Some general points to be made: it will behoove you greatly if you get Board Members on your side. In many corporations budgets have to be approved by the Board of Directors. Even if the Board doesn’t approve the budget, they will be able to influence what stays or is cut.
In order to have your budget approved, consider presenting numbers in the smallest way possible. For example, don’t request $5,000 for lunches, but $100/week (50 weeks) for expense report lunches. The $100 a week doesn’t sound like much, but people may obsess over a $5,000 line item.
Remember the goal of the budget—to allow freedom in spending and keep the company on track. If everyone remembers the budget is for the good of the company, there should be some flexibility in both directions.
Keep a good attitude and sense of humor when going into budget negotiations. If you go into any negotiation with a vendetta, or a personal issue, you’re going to lose. Even if you win a battle, you can still lose the war.
With the last two points in your mind, enter negotiations knowing where you are best able to be flexible and be quick to share this information and be willing to cut. That way, when the tough decisions come, you have already shown yourself to be a team player who has accepted a loss, so you are less likely to be looked to for further cuts.
Remember that the budget is a fluid and annual document. If you don’t get everything you want this year, keep good records of expenses and client requests, and resubmit your budget with the same requests next year, and you may get your budget increased. Even on a personal level, if you’re the one who had to say no to your own wants, remember it’s only for a year, and by increasing income and decreasing costs, your desire may be attainable in a year or so.
What’s really cool is that you can apply these same tactics to your calendar. Yes, you can create a time budget. Start with all the places that you have to be, add the things you need to accomplish, then your wants. It’s your decision whether exercise is a need or want, and your calendar budget will reflect that.
Enjoy the outcome of the budget process. Know that if the numbers are in the budget, and there haven’t been any horrendous surprises, like the company going out of business, you have the freedom to spend what has been approved. Enjoy the stress-free freedom!
Lindy is a Speaker, Consultant, and Business Author, currently living in Atlanta, GA, and available to answer your questions anywhere in the world. Focusing on Communication, Leadership, and Corporate Culture, you can be more successful with Lindy as your Coach. Please contact her at LMEarl@EarlMarketing.com.