Few of us like the process of budgeting, but by tying your annual operating plan to your budget you can make that process more fun and more useful. You can spot cash flow problems when they affect your operations and you can be ready with business cash advances ahead of time. We all know that a budget is supposed to be your business plan explained in numbers. Too often the budget is basically copied from year to year with minor adjustments for changing needs and trends, when it could be a tool to help you operate your business.

Poor Budgeting Leads to Mistakes

Often funds are not recorded or are buried in line items for those “in case” scenarios and forgotten budget items that suddenly pop up.  Other people consciously over budget and under budget and create ongoing headaches and artificial targets. In the best of budgeting, mistakes are made; requiring changes that often are not made. Fortunately small business budgets are exempt from much of the public scrutiny that comes with big business, public held corporations, or public institutions.

These practices can end up costing you money. Showing a knowledgeable banker or a savvy investor a bad budget will make him wary. On the other hand creating a budget that follows your operational plan makes sense. It also shows planning to meet targets and aligns your funds in the directions chosen for the business year. Properly done, it can identify fund sources for emergencies too.

Annual Business Plan

It all starts with your annual business plan. Every year or more often, you should review that plan, noting adjustments and changes that are needed.  Your business plan and budget can be sales tools you can use for potential investors and banks.

It all begins with the plan. When you develop a solid plan, it becomes your road map for the next year of operation. Changes will have to be made as better or updated information comes in, or changing trends affect it, but it becomes a useful tool.

You should have everything in your plan.  What is your plan for sales? What new markets are you trying?  What current markets are you servicing? What old markets are you trying to rebuild?  What target sales do you project for each area? Your planning should tell you who is doing what and where, as well as when.  Since everything profitable comes down to your sales-product or services- that is your focus.

Next comes the most time consuming part of the task.  You have to figure out the numbers of products or services you will need to obtain in order to meet expected customer demand. You will also have to plan for exceeding that number or falling short of your goals

Administrative Support functions

Take a close look at all your office services and different supportive services. How do your legal services, accounting, insurance, and other supportive functions help you operate your business? Again ask what is working and what is not helping your goals.  Look at structure, staffing, office space, advertising, and phone and Internet requirements.  Consider all activities down to the basic supplies needed for your success. The purpose is to create a written description of what your business needs to accomplish in the background to help create the sales level you project.

These sales and marketing, and administrative support plans will round out your own operational plan. When you’ve achieved your analysis and finally have your descriptive operating plan, it is time to get into the numbers as you develop the necessary overall employee staffing plan and overhead cost plan to help your operating plan succeed. Once you have achieved it, then it is time to change all the descriptions into numbers. Your accounting staff and/or consultants will have suggestions and techniques to help you create that number crunching budgeting plan. Work it until you have created your roadmap to profitability for the year.