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Company Budgets

Dear Dave
It is that time of year once again. At the urging of our outside accountants we create a forecast each fall of company income and operating expenses for the coming year. The problem is that as each year unfolds we seem to always end up hiring or firing people we did not plan for, or insurance renewals come in different, or revenue varies and so on and so on resulting in the final numbers always ending up way out of whack with the original budget. If we continue to do a company budget, how can we get more out of the process?

Dear DW
I’ll let you in on a secret. The real value of doing a company budget is not in the ultimate accuracy of the resulting set of numbers, but the thoughtful process you went through to produce the budget in the first place.

All firms who prepare company budgets have similar problems. Sooner or later circumstances or assumptions will change, and the ultimate numbers won’t be the same as the original numbers you planned. That’s Okay.

To get the most value out of the budgeting process, you should review actual performance against the original budget at the end of each quarter. If a particular item is above or below where it should be, understand why and react appropriately. Complete this process each quarter leaving the original budget intact and accumulating a narrative list of explanations of how each number has come to be where it is by yearend. Over time, you will be rewarded with a deeper and more complete understanding of your firm as well as becoming more proficient and accurate at budgeting from one year to the next.

Wahby and Associates