Things to Remember about Budget Analysis - dummies

Things to Remember about Budget Analysis

By Stephen L. Nelson

A budget truly gives a business owner or manager a way to plan out the year’s operation, think about what’s most important, and quantify what the firm should achieve over the year. While formulating your budget, keep a few things in mind:

  • Budgeting is an example of the old phrase, “Plan your work and then work your plan.” Budgets are not handcuffs. Budgets are not straitjackets. Budgets are simply planning tools that you use to thoughtfully make decisions about your firm’s financial affairs for the coming year.

  • If you aren’t getting value from the budgeting process, you shouldn’t do it. Or, at the very least, you should change the way you’re doing it. Use those tools that deliver the most value to you in managing your firm. For many people, budgeting does just that. If it doesn’t for you, skip the work. Time is often the scarcest resource for business owners and managers.

  • Budgets can be essential tools for managing people with financially quantifiable responsibilities. If you have people working for you who have responsibilities that you can financially quantify, you can use a budget to manage those people.

  • People who like to budget tend to focus on unfavorable variances. Although unfavorable variances often identify problems that need to be corrected, sometimes favorable variances are more interesting and more useful to dissect.

  • The key budgeting numbers to watch are often a pretty small set. Although a budget may have hundreds of numbers, you may be able to manage your business just fine by looking at just a handful of numbers. If you can distill your financial plan down to a few numbers that you need to watch, you can make your budgeting and financial analyses much simpler. All you do is identify the key financial statistics to watch and then regularly watch them.