I just read J.D. Roth’s A Quick Guide to Crafting a Budget on Entrepreneur.com. Although I think he’s aiming mostly at personal budgets, there’s a lot there that applies very well to business budgeting and the business planning process that every business can use. The difference between the basic numbers in a useful business plan and a business budget is just the name we use. They are the same thing. Starting with this:
Forget perfection. A budget is simply a target. Your spending likely won’t be perfect the first month (or the second, or the third). If you can’t get your money into perfect balance, get it as close as you can. Make adjustments as needed.
Which links very nicely with my basic principle it’s planning, not accounting. Part of what blocks people from business planning is the misguided idea that the financial projections are supposed to be detailed, sophisticated, and magically accurate. No, please — the truth is you should aggregate and summarize.
J.D. Also has these two points, both of which are true and important:
- Don’t sweat the small stuff.
- Make plans based on reality, not on your idealized life.
And my favorite, so important, is this one: Keep it simple!
Keep it simple. If your system of budgeting is a chore, you’ll never follow through. Track by only as much detail as you need. Even if you are able to keep your spending in check, overly complex budgets will fail, because they require too much effort to maintain.
Yes, and thanks J.D. That is so important for business planning, basic numbers, and projections. What’s important isn’t the guess you make first, it’s the process of tracking plan vs. actual and turning that into management.