Figuring out a budget is as necessary as it can be annoying. Some fixed costs are easy and other elements, such as sales numbers, can require a crystal ball. Yet without a budget, even the most profitable business can mismanage funds and fail. A successful budgeting process is one that creates an effective plan requiring the least amount of time spent.
The first step in creating a successful budget is realizing why some budgets fail. Inaccurate forecasting, whether done out of misinformation or desire for personal gains, can stymie any budget process. Harvard’s business school’s publication, Working Knowledge https://hbswk.hbs.edu/item/2647.html, has a great article explaining how this can happen.
This inaccurate forecasting doesn’t have to happen in the first place, and if it does, it can be fixed. A budget that has room for adjustment as the year goes along is more likely to be useful than one that is static. There will be unexpected costs but they can be factored in, as seen in the example of the San Diego Zoo used by CFO.com https://www.cfo.com/printable/article.cfm/4124788/c_4125297?f=options.
Another way to construct a more useful budget is to create stronger connections between the corporate strategy and the budget https://www.cfo.com/whitepapers/index.cfm/displaywhitepaper/11877469. Decide what the organization needs and what doesn’t contribute to the overall plan of the business. This means that the budget is not just being used to document expenses, but to hone in on the most important expenses and weed out unnecessary ones. In this way, budgeting can be a tool for maximizing efficiency.
By planning out how the budget is going to be used, and paring down the process to just what is needed, the budget will be easier to create and use.