Budgeting: Not Just for Holding Down Expenses
The word budget is a negative word for most people. Whether they are planning a personal or corporate budget, it brings visions of poverty, guilt and inadequacy. "A budget is a means of holding down expenses and living cheap," is the only definition most people use. While it is true that a budget is useful for limiting expenses, it can be used for much more. I like to define a budget as an organized method for allocating resources. For example, there's an old rule of thumb that companies should spend 10% of gross revenues on marketing. Therefore, you budget 10% for marketing. At the end of the period, you find you have only spent 5%. This is not cause for wild celebrations because you came in under budget. You can kill your business by saving money in the wrong areas.
In the '90s, I owned a company that sold computers to small businesses. An average office would buy five computers. One of my clients provides a perfect example of what I mean that a budget is a way of allocating resources. Since the average life of a computer is 5 years, they budgeted for a new computer every year. They would place the newest fastest computer where speed and reliability made the most difference and moved the older computer to a spot where these factors were less important. Other clients would wait until the computers were too slow to do the job and then replace them all, frequently under emergency conditions. It might look like both offices spent about the same, but the second office spent much more because of lower staff productivity and higher maintenance costs. The first office also made other improvements on a regular basis. One year repaving the parking lot, another year redoing the carpeting. The staff and customers always had a pleasant environment. Morale was high, staff turn over was low and the customer retention was above average. Every year the budget had an amount for capital improvements, this allowed for greatly reduced stress for all involved.
If you really want to hold down expenses, fire all your staff and sit in a cold dark room. Obviously, that is not what life is about! You need to think about why you are in business. What is your mission statement? Set your budget amounts to reflect those goals. Activities that bring you closer to your goals should get funding. Activities that distract you from your goals should be eliminated or at least have the budget amount reduced. My company's primary product is knowledge; therefore, the amount of the corporate budget assigned to staff training should indicate the importance of education.
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