The budget isn’t just a piece of paper filled
with best guesstimates about costs and the return from expenditures, or
sales, or net return (sales dollars minus expenses). It is a means of
controlling your operations.
Senior management will be watching the costs line as
closely as the sales lines, if not more. After all, reckless spending
can readily tip the scales in the wrong direction and, even with the best
sales return, can put an operation in the red.
Most managers have responsibility for some aspect of
their department’s budget, if not the entire document. If there’s any
advice, it is:
Expect everything to cost more than you expect. So
if you can, gather as much information as you can to come as close to
actual numbers as you can. If you must guesstimate, then better to overestimate
than underestimate expense and underestimate income than overestimate
it.
Monitor spending against allocations, ruthlessly and
regularly. You shouldn’t have to wait until a report comes from accounting
that costs have exceeded estimates. Be sure to keep track of expenditures
on a regular basis so you know precisely what is happening. If you can’t
cut costs in one line, see if there is another area where cuts can be
made. While the ideal is to exceed income, and second best is to make
budget, third best is to make the bottom line (net) by reducing costs
elsewhere. You can also increase sales dollars, of course, but it is less
likely to occur if you have based your budget on past history and realistic
expectations for the future.
Some good advice from Lisa Davis ( writing in her book
Shortcuts for Smart Managers): “Don’t put your head in the sand
and hope that things will work out. Take immediate action, transfer funds
from one area to another, and curb all spending until you are sure the
budget is running smoothly again.”
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