Destiny 2 The Old Fashioned Way Site Www.Reddit.Com Why Budgeting Should Not Be Such a Taboo Subject

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Why Budgeting Should Not Be Such a Taboo Subject

The term “budgeting” is as attractive as the term “dieting” is to many small business owners. They translate it as having to sacrifice or do without, instead of using it to measure what they can achieve. Successful entrepreneurs translate it to mean something very different. They view it more as a road map, rather than some fancy management tool or gimmick. They see it as a necessary process to help them figure out where they want to take their business and what they need to do to achieve their goals.

Running a business without budgeting is in many ways like an airplane pilot taking off without directions or a map. I know it sounds ridiculous and you might be thinking that no pilot would do such a thing? It would spell disaster, wouldn’t it? But in my experience, that’s similar to what many small business owners do.

Successful entrepreneurs do not rely on luck to achieve their goal. They plan, they set clear goals and budgets to achieve them and then regularly monitor them. They revise their forecasts regularly when new information comes to their attention or if they need to adjust expenses, etc.

If you’re still not convinced, I’ve listed three compelling thoughts on why you need to budget:

1. The Road Map

If you are unhappy with the performance of your business, it may be time to do something different. If you haven’t developed your road map or set clear goals, how will you know when you’ve arrived? You will probably continue to wander from one thing to another relying on luck, better market conditions and a better economic outlook.

“If you don’t know where you’re going, you’ll end up somewhere else.” – Yogi Berra

Successful entrepreneurs don’t rely on luck or wander aimlessly. Neither should you. Take the first step and take stock of where you are now “at” so you can plan your course and develop your business.

Your financial performance will often paint a very vivid picture. For many business owners, it will set off warning signs, but for some it will simply confirm that they need to reevaluate their direction.

Realizing and acknowledging your current position and where you would like to end up is key to your success. Your “numbers” are simply signposts on your road map. Looking closely at your numbers indicates your current performance and offers fact – they eliminate subjectivity, excuses, opinions, etc.

And sometimes it’s not nice to see! It can be like looking at old school photos and comparing yourself to what you look like now. It may not be a welcome sight!

For many businesses, these numbers often relate to revenues, return on investment, liquidity, fixed costs, variable costs, profit margins, etc.

Successful entrepreneurs examine the numbers and ask themselves tough questions about what they are telling them. Questions like:

• How happy am I with the return my business is giving me?

• Which areas should I focus on to (further) improve my numbers?

• What is my break even point?

• How solvent is my business?

• What numbers did I expect and what numbers would I expect to see in the future?

If you can answer these, congratulations, because you’ve just outlined where you’d like your business to be. You’ve drawn up your road map for success.

2. Symptoms & Causes

What is more important to address? Symptoms or causes? I’m sure you would acknowledge that sales don’t just come through the door or that fixed costs and overheads go down just because you’d like them to. They are symptoms of causes – your sales, fixed costs and overheads occur as a result of decisions you make and other related factors.

“Symptoms that you believe you recognize seem irrational to you because you take them in an isolated way, and you want to interpret them directly.” – Jacques Lacan

The budget process includes a number of activities, including strategy and question and answer sessions. It helps to identify warning signs (such as cash deficit) and their main causes, and also helps to quantify the related symptoms. For example, related factors that affect sales may include the:

• Number of inquiries (or leads) or phone calls made;

• Percentage of inquiries (or leads) that are converted into customers;

• Number of repeat sales made to customers;

• Average sales volume for a service or product;

• Marketing and sales channels you use

• And so on.

These are often called “sales drivers”. Your sales revenue is primarily derived from the result of such drivers. The overhead costs of your business are no different.

For example: The rent you pay is likely to be affected by your location or because you require additional storage space to keep sufficient stock. Payroll expenses may be blowing out of control due to extra time spent on urgent orders or your staff not being as productive as they should be. Clearly it is the underlying drivers that shape your sales or overheads, not the other way around. The budgeting process forces you to identify these business drivers and then quantify them, which is just as important as the budget itself.

Why, you may ask? Once you’ve identified the drivers, you’ll be able to focus on exploiting the ones that will deliver the best results and addressing the ones that won’t. Remember, the Yogi Berra quote. You are responsible for creating your own destiny and as the flight pilot you are the one holding the steering wheel. You can choose which direction you want to take your business.

It is important to know where you are going and to have directions and a road map. Successful entrepreneurs have them and they embrace how budgeting can give them greater clarity on the way forward.

3. Accountability, accountability, accountability.

Budgeting isn’t bean counting – it’s more about being accountable for your success. Once you know what key drivers affect your financial performance, the next step is to do something about them.

Your budget will not simply produce your sales target. But it will definitely help you identify and quantify the sales drivers that will. If your next quarter’s revenue goal is $240,000, that number is not your main focus. Identifying and quantifying the relevant drivers should become your focus. For example, a telemarketing campaign designed to sell a company’s new monthly search engine optimization service may have the following drivers:

• 5,000 calls made over 90 days;

• 8% of calls result in new customers (“conversion rate”);

• Customers subscribe for 12 months;

• Service is $50 per month per customer.

Note: 5,000 x 8% x 12 months x $50 = $240,000.

These numbers should now give you more clarity and focus. You should take this a step further and make someone responsible for each one.

“Accountability breeds responsiveness.” – Stephen Covey

Successful entrepreneurs keep scoreboards. They want to know if goals are being met and results are being achieved. Identifying drivers and then quantifying goals for each of them changes behavior and focus. It will help develop questions such as:

• How many calls did we make today and are we on track to reach 5,000 by the end of the quarter? And if not, why not?

• How much training and instruction do I need to provide to help “close the deal?”

• Do we have the right number of people to be able to deliver our service?

• Will we make decent margins?

As can be seen, significant benefits can be made evident during the process to prepare it. It provides direction and focus. And when it is ready, it becomes an extremely useful tool that can be used to assign individual responsibilities for the chosen goals.

If you have decided to take back control of your business and would like to improve its financial performance, develop your road map. After all, “If you don’t know where you’re going, you’ll end up somewhere else.”

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