Budgeting Made $imple

by Steve Bailey

What to spend? 

How to spend it? 

 

These are questions every business owner asks themselves, and most likely the largest impetus to creating budgets.

 

It's a noble effort, but if you don't know how to budget, will it yield the correct numbers to use? And if you don't reach the budgeted goal, what will you do about it? These two budgeting issues are the prime reasons budgets fail.

 

To understand why budgets are so difficult, and sometimes fail, let's first look at how budgets are usually constructed. For our example, we'll use Profit & Loss budgeting. Most P&L budgets are over a twelve-month period. There are two columns per month, one labeled 'Budget' and the other 'Actual'. At the beginning of the year, there are twelve columns, but by the end of January the actual values are filled in, and you have thirteen columns. By the end of the year, your budget has twenty-four columns of numbers, a dizzying array to take in at one time. The real crux of this type of budget is that, as the year progresses, you meet or exceed your Profit goals, or you fall lower than goal. In the case of the latter, you usually won't know if you are going to meet the year-end expectation until just that - the end of the year. This type of budget, in which the Budgeted values are cast in stone, is called a Static Budget.

As the time winds down for reporting to the 2015 P&L Study (there might still be time to report, call me!), my phone goes into overtime. Questions relating to reporting, especially from new garden centers in The Group, come in at an ever-increasing rate as the deadline approaches.

Don’t get me wrong, I’m glad everyone is calling! Clarifying what goes where in the data is the key to valid data in the report you receive back. Since the P&L Study began over ten years ago, the report has become an industry standard due to the time, effort, and accuracy participants have contributed to the effort.