I’ve tried to convince you that putting together a budget for your business doesn’t need to be an exercise in pain management. In fact, your budget plan is one of the more useful tools you can use in learning about your business.
When it comes down to it, all your budget really represents is the strategy for your business, transformed into numbers. In a sense, it is the intent behind your actions. What you think should happen.
Once you have a plan, you can use one of the more effective techniques I use time and time again in whatever business I am involved with.
Build a bridge. A Budget Bridge
One of the more attractive aspects of living in the Tampa Bay area is its scenic roadways over the Bay. I’ve been here for almost two years now and I never get tired of driving over the Howard Frankland bridge. On a clear day, the view of the Bay is something to behold.
But, I digress. The bridge.
You see, the two sides of that bridge represent two things. One, is the side where my family and I ended up when we made the jump down to Florida from Buffalo, New York. Doing the best research we could from a distance, it was our best guess of where we should start the next phase of our life. It’s worked out quite well. We live in a good neighborhood where our son attends a good school, and we’ve met some fabulous people.
Once we started poking around we stumbled across the other side of that bridge. St. Petersburg, Florida. Beach neighborhoods, old neighborhoods, eclectic shopping, and not the least important, a plethora of craft breweries. Someday, we will end up there. Both my wife and I are quite convinced of it.
So, how does this all get back to budgeting? Well, where we are now kind of represents the plan. When we got down to putting pen to paper, this is what we figured this whole crazy journey to Florida looked like. At some point down the road, St. Petersburg is what it will really end up looking like.
The bridge connects the two. The plan and the eventual reality.
The same goes for your business. A version of the bridge I use often is a sales bridge. Let’s say you had a budget that looks like this for the next three months:
After three months, your actual results look like this:
As I have said in the past, the proper reaction here is NOT hours of beating yourself up because you had $1,000 less in sales than you budgeted for. Instead, this is a learning opportunity. Based on this example, here is what a simple revenue bridge looks like:
|Lower than Planned E-Book Sales||-2,000|
|Higher than Planned Consulting Revenue||3,000|
|Lower than Planned Sponsorships||-2,000|
This is far, far more useful than simply saying “Ugh. I ended up short by $1,000 in sales”. Instead, you can take a critical look at where your results differed from your assumptions. For one, I’d be all over the fact consulting revenue is up so far over your plan. That then leads to useful questions:
- Why are people suddenly flocking to me for consulting gigs?
- Am I charging enough?
- Is there a common pain point behind all this new business I have overlooked that can be leveraged into a new e-book to boost those sales?
The same type of questions can be used for sponsorship sales:
- Was the shortfall due to the extra time I spent on consulting?
- Do I abandon trying to get sponsorships in favor of devoting more time to consulting?
- Am I charging too much for a sponsorship?
Bridges can be used to tie back actual expenses and profit to your budget plans as well. As long as you keep asking yourself the all important question.
Asking yourself why you varied from plan is so much more useful (and less humiliating) than painting budget variances as a success/failure judgment.
Having a profitable business is great. But, if you don’t take the time to reflect on why it is successful, you are going to lose opportunity after opportunity to make it even better.