As we saw in a prior post, Budget problems abound.  Our Government budgets are in deficit, many personal budgets are in deficit, is it any surprise that our business budgets may need some attention too?

Budgets involve much more than a once-a-year commitment. For real value, you have to review it every month. Now that we have a couple of months of data to look at, let’s go over how you might do that!

First, let’s look at where  you hit (guessed right) and where  you missed (guessed wrong)? The difference between what you budgeted and your actual results are known as “variances”. Run your finger down your Income Statement and look at what categories had the highest “variances”. (Better yet create a budget report with budget in one column, and actual in the next column, then subtract Budget from Actual, the result is a variance column.) What happened here? Sometimes it’s just timing, an item that only occurs once or twice a year and it showed up all in one month, but you budgeted a little each month. Other times you will find places where your spending is just a lot higher (or lower) than you thought it would be. Why is that? What changed? You need to think about changes you want to make to get back in line with your budget.

Next let’s look at the important numbers. Are your sales over or under budget? Again, why? Did you get more leads than you predicted? Is that going to continue, or was it due to some kind of one-time event (trade show or promotion)? Are you closing them at about the rate you expected? Is your average sale higher or lower than you thought?

If your sales are under your budget, then you need to make sure that your expenses are under budget too in order to protect your profits. Do you need to reduce expenses to align them with your sales performance? This is always a judgment call. How do you decide that it’s time to make cuts, or more sales are right around the corner? Evaluating your budget and results monthly forces you to look at the data and decide. If month after month you are behind, it’s time to make some cuts.

Now that you’ve reviewed your major categories, let’s look at other assumptions. Are you thinking about hiring new people? Are the sales there to support new hires (or leads to support a new sales hire)? Thinking about more office space, or investing in new equipment? What are the key indicators that tell you that those investments are needed? Are you hitting those numbers consistently? Then invest with confidence.

If you are consistently looking at your numbers, and really looking at why they are better or worse than your projections, you create a frame for any decision in you business. It can even set your priorities. If sales are behind, you need to address that. If they are ahead, but profit’s not, then expenses are out of control… You get the idea.

Your budget provides you a measuring post by which you can compare your actual results and decide how you are doing. It also provides you with a tool to play “what if” and decide if you like the results.

What numbers do you look at that tell you how your business is doing?

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Brad Farris is a small business advisor with Anchor Advisors, Ltd. in Chicago, Il. Since 2001 Anchor Advisors has been helping creative professional firms to grow, by helping them clarify their purpose, get the most from their people, keep their eye on key performance measures, and implement consistent processes. Brad is also the author of The Business Owner’s Champion: 6 Practices to Build your Nerve and your Business.