Why do we Budget? Five Big reasons

One thing successful business people will always tell you is to dream big.

Steve Jobs did it when he launched the iPhone in 2007. Elon Musk persisted with his dream and found a market for high performance electric cars. The Uber founders certainly did it after they struggled to hail down a taxi one snowy night in Paris.

All these people will also tell you to plan how you’re going to get to your dream and don’t forget to link some numbers to it.

Once you have a budget you’ll have an exceptional valuable business tool. Here are five reasons why:

  1. Budgets visualise success

We have to dream big. But what is big enough? This is where reality comes in. A realistic budget will put your dreams in perspective and give it structure. Reality will certainly bring you closer to your dream and as Walt Disney said, “If you can dream it you can do it.”

  1. Budgets map out the plan

Budgets quantify your plans and give you a form of measure. It is a compass for success and the ideal tool to benchmark actual performance against.

This plan will also then direct you as to how and when to assign your resources such as cash, people and other business tools or plant and equipment requirements.

  1. Budgets give us focus

Each day business managers have to make a significant amount of decisions. Decisions drive activities. Activities are connected to cost and income units and if they are arranged in processes and time schedules you will get an efficient budget.

The direct or indirect result of these activities must relate to earning an income, decreasing a cost or minimising a risk. If that is not the case the activity does not add any value.

Budgets are the perfect tool to analyse how activities, business units and outcomes are connected. A good budget will lay down a platform for managers to reverse engineer consequences and help them to focus on what is important and what is urgent.

  1. Budgets give us wisdom

The budget process is not just a finance function but a team effort to include senior management, marketing, operations, finance and other business units with the same desired outcome.

The process is the main driver for the team’s motion of thoughts and actions and the team members need to explore all potential outcomes, opportunities, risks and obstacles.  This prompts the gathering and analysing of essential past and future, internal and external business information. This leads to business intelligence. Intelligence gives us wisdom. Wisdom is power.

  1. Budgets work!

Frequent budgeting and the consequent performance management of it will lay down a culture and discipline for continuous improvement. We may set the bar too high and fail every once in a while, but is failure really bad? Perhaps failure is an answer, one that drives us to excellence.

“The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.” – Michelangelo

Johan Czanik has deep roots in cost accounting, marketing and business management. His ability to draw on his vast and diverse experience and assist in budget management will enhance the profitability of your enterprise.

Leave a Comment

Your email address will not be published.