Keeping Your Budget Current

Author: Larry Chester, President

You created your budget last fall, and you were relieved that you completed the task. You don’t need to worry about it for another year. But what is the reason that you created the budget? If it was just to put a target on your company’s back for this year, then you are missing the opportunity to have another planning tool at your fingertips.

Let’s look at three major areas of your budget to see how it can help you through this next year.

Revenue and Gross Margin
There are a lot of factors that go into your revenue numbers:

1. Revenue Streams – Do you have new product families? How have those performed so far? Do you see market changes looming that will impact your sales in those areas this year? If you do, adjust your budget. Have any customers indicated that their buying habits will change? Have you thought of new sales opportunities? You should make changes to your budget to reflect the current view of the rest of the year, because now your target has changed.
2. Cost of Goods Sold (COGS) – Who are your suppliers, and how are their costs changing? Are there opportunities to use a new supplier that will have an impact? That might be in a couple of different areas, including reduced costs, their holding inventory, Just In Time Deliveries, freight costs. See how that would impact you throughout the year.
3. Freight Expenses – If you adjust your ordering schedule, can you save on freight by using a slower means of delivery? Are you shipping from a closer location? Can you change from your shipping terms from FOB (Free On Board) their dock to FOB YOUR dock? That puts the freight costs in their pocket, not yours. How do those changes affect your numbers?

Sales Expenses

1. Sales commissions – Is your commission structure rewarding the performance that you want to see? Additional reward for certain products you want promoted can “convince” your salesforce to spend extra effort in those areas. Salespeople have an uncanny way of figuring out the best way to make money. Design your compensation program so that when they figure it out, it makes the most money for you as well.
2. Marketing costs – Do you measure the ROI on those activities? On some marketing, it’s hard to quantify the results, but if you’re paying to generate leads or awareness, or get clicks on your website, those are things that you can measure. Measure them and assure that you’re getting your dollars’ worth. Try it, track it, change it.

Overhead expenses

1. Services – What you pay your lawyer, accountant and others should be providing a specific benefit for you. If you’re not getting results that benefit your bottom line, then you should adjust what you’re asking for and then adjust your budget comparably. Be specific in your requests, so that you get what you expect.
2. New Projects – Changes will happen throughout the year. Don’t be unrealistic, note those changes in your budget. Are there more marketing costs, more legal fees, or more equipment that needs to be purchased? Whatever needs to be bought, make sure you see the impact before the project gets started. It might affect some of your decisions.
3. Fixed Costs – Some of these are impossible to change. Your rent isn’t going to suddenly go down. But you can look for cheaper suppliers of gas and electricity, landscaping, maintenance, telephone and internet services. Technology moves the delivery, quality and availability of those services. Make a change and update your budget to record how that will affect your year end.

Your budget is a planning tool, but it’s not just a once a year tool. You should be looking at it, and revising it as your year progresses. That way, it will show you what your year-end will look like with the changes that normally occur during the year. Keep your budget current as a planning tool, and you will see a payoff. You’ll be knowledgeable of what your year-end should really look like.