Today, we’re going over more tips for the reluctant budgeter. Budgeting can seriously improve the efficiency of your business by providing you with realistic expectations about income and expenses, but only if you’re diligent about it. You have to go into budgeting with the right mindset, the right team, and a good knowledge of the type of budgeting that will best serve your business; we went over all of these details in the last blog. Today, we’ll delve into a few more tips!
There’s a Donald Rumsfeld quote that’s been mercilessly mocked, that I find to be quite insightful. You may have heard the one: he talks about known knowns, known unknowns and unknown unknowns; all of these things should be considered in your budget. The things you know you know, like how much you have to pay your employees each month, should be included. The known unknowns, like mechanical breakdown or employees leaving, should also be considered; try to recognize patterns and predict when the unknown will happen a bit more easily. Finally, you should be ready for the unknown unknowns, and the only way of doing that, by virtue of their unknowableness, is to budget conservatively.
In line with the inherently unknowable nature of the future, you should be prepared to change your budget as time goes on. You’ll encounter unexpected expenses in some sectors of the budget, but in others, you’ll discover windfalls; don’t worry about moving some of the money from the windfall over to the sector of the budget that’s been struggling. This kind of flexibility will allow every segment of your company to thrive; you’re getting a type of collective resistance to budget shortfall.
Following this, it’s important to remember that some expenses are tightly associated with one another. Let’s say you need to get new machinery, and that unexpected expense adds to your warehouse acquisitions; if you also need to retrain your employees, it adds to your personnel costs. Conversely, if you downscale, it doesn’t just reduce your payroll costs, but serves to decrease the costs of employment insurance, pension, and other costs that inherently occur when you have employees.
Budgeting is best when everyone in the company is aware of your goals, and how you’ve calculated those goals as attainable; that’s why it’s important to get employee feedback on budgeting, as well as to create realistic goals. When everyone is involved in the budgeting process, you’re likely to get valuable feedback you can use to rework the budget into something more reflective of the company’s actual capacities. Budgets are massive, and it’s easy to overlook potential income and expense, so don’t hesitate to rework it as many times as necessary; that type of flexibility will really add to your budget’s realism and effectiveness.
When budgeting, it’s important to know what expenses can be claimed on your taxes; fortunately, Compass Accounting is available to help you crunch the numbers and figure out how much of your expense is tax deductible. That can help you create a realistic budget that everyone is happy with!