Financial Disease #5
Budgeting Retinal Detachment disease is due to a lack of formal planning and budgeting, which results in diminishing organizational clarity, direction and sight. While painless – visually this has a clouding effect that has been likened to a gray curtain moving across the field of vision. This condition separates the organizational goals from the ongoing operation. Otherwise known as entering into a business funk where you are either operating blindly or ‘by the seat of your pants’. Budgeting retinal detachment is a treatable condition, but it must be taken care of promptly, or it can cause a degradation of business vision and in the worst cases, organizational blindness.
Many business owners don’t believe in budgeting. They feel they know their business well enough to manage it from instincts and their institutional knowledge. Therefore, the formal process of putting financial goals and expectations down on paper is a waste of time. Additionally, who can accurately predict the future and even good budgets are notoriously inaccurate. So, “Why go through such a time consuming process that will only result in a piece of paper that at the end of the day will probably miss the mark for the planning periods?”
My answer is, yes – budgeting and planning are time consuming activities that are frequently inaccurate. However, despite inherent shortcomings, there are too many offsetting benefits for budgeting that simply cannot be ignored.
Below I have listed four reasons why every organization should adopt or embrace a budgeting/planning process.
1. Create a Roadmap – Don’t operate blindly or without a written financial plan. For example, would you start a trip without knowing where you were going? Probably not? You need a map or set of directions. It is helpful to view a budget as a roadmap. If done properly, it can set a path for the organization to follow. This will increase financial confidence and purpose within the organization. It can also help with decision making for expenditures or revenue initiatives.
2. Increase Control – For those organizations that are spending challenged, a budget will help you get back in control of your money instead of letting your money control you. You will learn how to control yourself from unfocused buying and overspending. Business is incredibly unpredictable! If you have a budget and you lose that key client, you can see how it will affect the rest of your business so you can make the changes necessary to get back on track
3. Clarify Expectations – Money often plays a big role in most internal business arguments. Who gets what, which group will be allocated more resources to do their job, etc. By using a budget, you and your team can jointly work together to define, and improve your financial situation, together in a holistic approach! A budget creates a financial plan for the whole organization. A budget is a vehicle that will enable the organization to work together in a healthy open environment to achieve organizational goals.
4. Measure Progress – Comparing budgets to previous periods and actuals gives perspective. Reviewing the financial reports to budgets each month is a little bit like getting on the scales when you been exercising and eating well. It shows progress or highlight areas for improvement and additional focus. It helps shape efforts and reprioritize activities in order to improve business outcomes.
A formal Planning/Budgeting process can yield clarity of purpose, define accountability, and provide a benchmark for performance measurement. An old boss of mine used to always say, “What you don’t measure, you can’t improve”. This is so true in business, as well as with sports and in other life endeavors.
The budgeting/planning process in and of itself is more valuable than the end product. The internal annual budget discussion of jointly setting clear objects helps an organization set future expectations and gives clarity of purpose to the entire enterprise. It establishes priorities and can streamline decision making throughout the year.
The bottom line is that a budget will reduce your stress, provide you with a sense of control, improve your bottom line, and provide organizational direction. It can also be a valuable tool for communicating with other key constituents: like banks, lenders, directors, investors or clients.