The Process of Budgeting at Many Institutions of Higher Education Needs to Change

Refinements and Improvements to the Annual Budget Process

Due to the economic challenges many institutions of higher education are facing today, and the need to do more with less, budgeting is clearly a very critical item on the agenda. Addressing the problems associated with the budget process and having people working together towards common goals and results is a top priority. And if Budgeting is a Financial Application, why are 90% of user’s non-financial people?

It is not uncommon for the faculty and staff at an institution of higher education to view the budget process as something that is being “force-fed” from Finance. In order to improve this process, an interface for the faculty and staff should be developed and utilized that “walks them through” the budget process in such a manner that will be simple and yet very powerful. What would be helpful is the flexibility to budget the way they think about their areas of responsibility and allows them to budget on course with the strategic plan of the institution, including full disclosure and documentation of how and why they need what they are asking for in their budget.

Additionally, it is not uncommon for the Finance Department to be under staffed, or be lacking in the resource capabilities to manage all of the complex mechanical aspects of the budget process, as well as being able to readily provide analysis and decision support. The mere process of preparing budget templates, distributing them to the faculty and staff, collecting these spreadsheets, verifying their accuracy, aggregating and consolidating numbers and preparing for the budget review sessions is a cumbersome and manual process for the finance staff. Instead, the budgeting system in-place should alleviate most of those time-consuming mechanics, and allow for the finance staff to focus their time and attention on value-added decision support and analysis.

Budgeting for Special Initiatives and Projects

Because the budget process requires identifying spending for special initiatives or projects that may “cut across” various accounts or even departments, it can become very difficult to track properly for these items in the budget process, and it presents the possibilities for human error; especially when a budget for a project is not approved and someone, presumable someone in Finance, has to accurately “strip” or remove all of the spending out of all of the impacted accounts in the budget process, and then reconsolidate the results.

Having a budget system that can easily create budgets for special initiatives and projects, thereby facilitating an initiative-oriented budget review process would be an ideal process to have in place. This type of system should allow for faculty and staff to submit these initiatives and then have the budget system automatically determine the impact on the account structure. Without this type of budget system, if an initiative is not approved, someone has to go back into each of the associated accounts and try to remember how much that account was attributed to that initiative that was cancelled. This can cause inaccuracies and it will lack an audit trail.

Detailed Budgeting for Position Control

For many institutions of higher education, it is not uncommon to find that over forty percent (40%) of expenses relates to personnel costs (salaries & benefits). However salary and headcount planning are many times disconnected from the rest of the budgeting process. This can lead to confusion, rework, and a lack of fiscal awareness and understanding on the part of the department heads who actually manage the faculty and staff.

To help alleviate this problem, having detailed budgeting for “position control” should be in-place. Salaries and benefits are a special line item in the budgeting process. Therefore, the budget system should be able to handle half of the requirements with respect to “position control” – the budgeting half.

The budget system should allow for faculty and staff to plan headcount down to the individual level and let the “system” handle additions, reductions, raises, FICA, benefits and other.

Report Generation

In addition, timely and accurate reporting is always a challenge, and faculty and staff are heavily reliant on Finance for reports. Producing these reports can be time consuming and prone to error, especially if you are using Excel linked spreadsheets.

What is needed is both budget reporting and monthly management reporting. A good system should have pre-defined report formats, specific reporting, and fully user customized reporting that does not require the user to learn a new report writing environment. It should be user friendly and simple to use, while meeting the institution’s specific needs.

Budget the Way They Think

Because there are divergent needs across institutions in the way people think about and develop their budgets, it can be a complex issue. For example, the needs of the English department do not match the needs of the Business department, which do not match the needs of the Music department. Each has a unique way of looking at their financial needs. This is all made more complex by the fact that the institution also has to consider diverse needs like housing, food services, athletics, facilities maintenance, alumni relations, admissions and other non-academic departments.

Therefore, what is needed is the flexibility to deal with the challenges of diverse departmental needs so that each faculty member or staff involved in the budget process will be able to budget the way they think, but do so in a well controlled environment.

Preparation of Multiple Budget Versions

Generally, budgets are and have to be prepared without full knowledge of what the actual student enrollments will be or what grants might be approved or what gifts are received. This is probably the biggest challenge in the budget process. Therefore, the institution should prepare multiple versions of the budget and then select a scenario that most closely resembles the reality of the school year when it begins.

Having a budget system that can manage multiple scenarios/versions is what’s needed. For example, the college or university will want to budget a worst case, best case and a most likely scenario. The system should accommodate that, and also make it easy for faculty and staff to then submit the “Final” budget which may incorporate elements of all those different scenarios.

Management expects fast answers to practical questions like “What’s the impact if we reduce the tuition increase from 3.5% to 2.5%?” At first blush, this may seem like a relatively easy calculation to make. However, when you take into consideration all of the other budget line items and variables that can be affected by this sort of change, producing a result with real accuracy can be difficult and time consuming. Ideally, you want to be able to achieve updated financial targets as directed by the institution’s President without necessarily going in to make significant account changes. Therefore, the budget process should allow for structured and practical “what-if” capabilities that will allow users to test assumptions on high level strategies to determine their impact on the budget without spending a lot of time making the calculations, yet having them be accurate.

Therefore, practical “what-if” capability that will make it easy for Finance to see the impact of changing key levers of the budget and identify ways to “close the gap” quickly is what is needed.

Implementation of a Budget Workflow Process

Often times the operational review and approval process can be inconsistent across the organization. Because of this, Finance has no way of knowing which budgets have really been operationally scrutinized and “scrubbed” by Deans and VPs and which ones haven’t. This leads to an equally inconsistent quality of budgets being submitted and consolidated; and ultimately to rework.

Because of this, a budget workflow process needs to be implemented. Both finance and administrators need to have a budget process that will allow for organizational budget review and budget approval of department budgets up through the organization chain of command. This process can dramatically reduce the time that it takes to get to a “Final” budget, and it allows for greater ownership of the budget and dramatically improves the quality of the budget numbers.

Utilization of a Budget Map

Generally, faculty and staff want everything that they need for a budget on one singular screen, but this is really impossible with Excel. They have to go to multiple files and multiple tabs, which can lead to frustration, confusion and rework.

Having a Budget Map in place that lays out all the accounts needed to budget for and presenting them in a way that’s easy to digest and understand will produce a much better result. It should answer questions at-a-glance like: which department am I budgeting for, which version of the budget are we working on, which accounts am I responsible for, what options do I have to both create and spread my budget numbers, what is my current budgeted headcount for the year and what final targets am I being asked to achieve.

In Summary about the Budget Process

While operating expenses continue to rise, the days of simply passing on those increases in the form of rising tuition can no longer be the norm. Students and their parents look for leadership in higher education to find ways to do more with less, and without compromising education and the student’s environment – that’s the new normal. Budgeting, and effective resource allocation, is at the heart of addressing the new normal, and it must be a priority.

It is important that the current budget process at institutions of higher education be reviewed and those current processes should be compared to the concepts and budget system described in this article. If they do not utilize this type of budget system, the institution should consider forming a Project Team to identify, review, and sample software solutions available through companies that have developed and implemented innovative, practical and incredibly powerful budget preparation software for institutions of higher education, that energizes a “Culture of Budget Accountability” among users. Tailored applications for institutions of higher education in budgeting and planning applications, replacing spreadsheet-based budgeting and providing maximum user flexibility and financial controls are readily available from industry specific software solution providers.

Ultimately, the goal to refine and improve the annual budget process at any college or university would be to have a budget system in-place providing for improved communication, greater ownership of the numbers and increased transparency enabling the institution to better manage financial performance throughout their fiscal year. And once the budget is in place, monitoring the actual operating results to the budget on a monthly basis, with variance analysis explaining the reasons for the differences is a necessity; recognizing adjustments may have to be made during the year to hold the overall actual operating results as close as possible to budget in order to avoid shortfalls and deficit spending.

How to Budget Fast and Easy: The 5 Steps to Success

Some of the most frequently asked personal finance questions during this difficult economy revolve around “how to budget”, “how to make a budget” and “how to live on a tight budget”. Budgeting your money successfully is crucial to flourishing in any type of economy, much less a tough one. There is a common misconception that good budgeting depends upon fancy forms, financial expertise, software programs and solely on one’s income. All of these false notions completely circumvent the only true goal of any personal budget: Getting the most value for each of your hard-earned dollars.

Those misguided beliefs above are the key reasons why many people are much worse off than they should be, regardless of income levels or familiarity with financial software. There are many people who are much “better off” with a lower income and a simple budget form than those with great salaries and top-notch computer programs. These successful folks are the ones who have learned the secret: Keenly stretch your dollars without sacrificing quality or “good living”. This is the foundation for our budgeting method and it is the best method. It is the most effective method because it combines the three critical budgeting elements: Cost-cutting without sacrifice, timing your income/expenses and simple, accurate recordkeeping.

We have been successfully managing a household budget for nearly 30 years and have survived many unforeseen “bumps and bruises” along the way. During that time, we paid off our mortgage eight years early, sent two children through college, managed to save a good deal of money and maintained a nice standard of living. There were no magic tricks involved, just common sense, a few simple forms that we developed (see below) and a little effort. We have read countless “How to Budget” books and articles over the years and while a select few were beneficial, the majority we simply dismissed out of hand.

Unfortunately, most budget or personal finance “experts” approach cost-cutting from the standpoint of scaling back on items and niceties as a first choice, as opposed to a last resort, as it should be. One author for a popular financial web site even suggested eating a sandwich or a snack before going out to dinner because you would be less hungry and therefore saving some dollars. Taking this “logic” just a step further, why not just stay home and save even more? It is this type of lazy journalism and advice that keeps people meandering on the path to mediocrity. We had a good chuckle and moved on.

There is a Better Way…

The Dining Out Example:

The basic idea behind going out to dinner is to escape your stresses for a bit, have fun, relax, enjoy a change of scenery and forget about cooking and doing dishes for the evening. If you are going into it overly concerned about the financial aspect, you are nullifying the underlying relaxation intent. Our approach for “cutting back” on dining out expenses is quite the opposite: Cut only the bill, not the quality or quantity of dinner items. How so? By using, anyone can cut their dining bill by 60% every day and up to 92% on special days. That is paying 8 cents on the dollar. This is a much more effective approach and no one needs to worry about filling up on pretzels on the way to the restaurant.

While well-intentioned, it is this narrow, defeatist assertion of the author and many like-minded peers that we reject. Cutting back on products, services and enjoyment to save money is not getting ahead, it is trading off. And trading off is not the path to living better. We fully support frugality, with the added feature that you can be frugal AND attain a higher quality of living simultaneously. Certainly you shouldn’t waste money on items which return little value but nor should you unnecessarily deprive yourself of the fruits of your labor. Break free from the antiquated “You can’t have your cake and eat it too” crowd. A cake has only one purpose and the trick is to find the cheapest high-quality “baker”.

It is this simple dining out example upon which our entire budgeting principle is based: Why spend more for something when you don’t have to? We take it to an extreme however and raise the question to: Why spend MUCH more for something when you don’t have to?

Much like visiting the local market and discovering that Joe is selling a bag of apples for 10 dollars while John is selling the same bag for 3 dollars, the choice is simple. This “supplier-replacement cost-cutting technique” is the backbone of our budget plan. Accordingly, we highlight similarly discounted deals in many areas of consumer spending. That is our philosophy and this is reflected throughout our site and specifically in our Budget Cutters section. The prices are 50%-90% off of retail on many purchases, bills and expenses that people deal with every day. Furthermore, in many cases, the “3 dollar apples” are of higher quality than those in the 10 dollar bag. This is the “secret” to getting ahead.

Our mindset and methodology on how to budget are clear:

1) Slash costs.
2) Maintain quality.
3) Pocket the difference.

The old adage is true: “A penny saved is a penny earned”. The real goal though is to multiply the benefits of that adage over the course of time into “Thousands of dollars saved are thousands of dollars earned”, while increasing your standard of living and net worth.

How to Budget: Step by Step Instructions:

Note: All of the forms referenced are freely available on our web site, along with sample completed forms.

Step 1: Find a quiet spot, relax, clear your mind and rid yourself of all of the over-complicated, force-fed convoluted advice that you have received over the years. Successful personal budgeting is easy and enjoyable, particularly the end result.

Gather all of your current information regarding income, debts, recurring expenses and discretionary (fun, entertainment) spending. This can be handwritten on a piece of scrap paper or with a collection of paystubs, bills, bank and credit card statements. To keep matters simple, use your after tax (net) income for purposes of using our forms. If you have savings, insurance or other expenses deducted from your paycheck, add those amounts back in to figure your net income. This will be your true net income, those “deducted” expenses will be listed in another area of your worksheet. Enter all of your data in the appropriate area of the Budget column on your Budget Form. This is a simple 3 column form with the headings: “Actual”, “Budget” and “Variance”. Do not be disheartened or discouraged if the results appear pessimistic at this point. Your only goal at this stage is to be certain that you have all of your items listed.

Note: Steps 2 and 3 are performed only when using our budget plan for the first time. Thereafter, it is simply a 3-step process.

Step 2: This is the most critical and the most overlooked step by many people. It is the step which differentiates our plan from the majority of others which emphasize cutting your quality of life to save a buck. Remember the theme: “Cut only your costs, not your enjoyment”. This crucial area requires some upfront effort and will be well worth the time. Our Budget Cutters section will be an enormous help. In this step you will permanently cut the “fat” (overpaying) and this is the foundation upon which all of your future budgeting success depends. As you discover big savings on the payouts that you have already been making, this money will fall to the “bottom line”, your pocket…where it belongs. Take your time and review the deals that we have listed, as well as any deals that you may find on your own.

When you have good estimates for your cost-reduced budget figures, enter these figures in the New Budget column on the Comparison Shop Form. This is a simple 3 column form with the headings: “New Budget”, “Original Budget” and “Variance”. Enter the information from Step 1 in the Original Budget column and figure the variances. This will illustrate your newfound savings by category.

Note: This step may take some time before you have whittled down every one of your expense categories. Do not fret, use your best estimate at this point and adjust your figures as you move through later months. If you are in a dire hurry to get your budget done immediately, skip Steps 2 and 3 for now and revisit them later. Bear in mind the importance however, as this is the step which puts money back into your pocket.

Step 3: Adjust your budget and re-apply your newfound savings to some of your critical categories: Debt (particularly credit card debt), savings accounts and “fun” spending. These figures are entered in the New Budget column of the Budget Readjustment Form. This is a simple 3 column form with the headings: “New Budget”, “Original Budget” and “Variance”. Example: If you have been making only the minimum payments on your credit cards, increase these payments immediately for the sake of your long term financial health. Credit card interest is a killer and the longer these debts exist, the more damage it will do to your cash flow. Equally as important, comparison shop your current cards for better deals concerning interest rates and cash-back options. Enter your changes in the New Budget column. The goal here is to maintain virtually the same bottom line after you have readjusted your categories. These are now your official budget figures.

Step 4: At the conclusion of the first month, enter your actual spending in the Actual column of the Actual vs Budget Form and your newly budgeted figures in the Budget column of the form and figure your variances. This form is identical to the one in Step 1. This is your report of how well you performed for the month. Use this first month as your stepping stone for the future, with steady progress as your goal.

Step 5: This is the step that ties it all together: The Weekly Budget Form. This is a simple 3 column form with the headings: “Actual”, “Budget” and “Variance”, broken down by week. This form will be an immeasurable help in planning the timing of your bills and income. This form is completed much in the same manner as the others but is organized by week and due dates to ensure that your budgeting process will flow without any shortfalls in funds. Before the month begins, fill in all of your Budget data (according to your due dates) in the Budget column of the Weekly Budget Form.

The key here is to make certain that the figure labeled Gain or (Loss) for the month (at the bottom of the form) in the budget matches the figure labeled Balance in the budget column of your monthly Budget Form. It is imperative that these two figures are in sync before the month begins. At the completion of each week, fill in your actual data in the Actual column. When the month is complete, the actual and budget figures on the last line of the Weekly Budget Form should match the actual and budget figures on the last line of the Monthly Budget vs Actual Form. You will now have completed reports on a weekly and monthly basis for the month just ended.


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The Point of Budgeting In Small Business

Too many small businesses operate without budgets. And many small businesses that do have budgets aren’t getting as much out of them as they could. We’ve seen it time and again.

It isn’t because the mechanics are difficult to manage. Everyone knows the basics of how budgets work: you track money coming in, you track money going out, and you do your best to plan for the future. In fact, the very simplicity of that formula is what leads some small-business owners to consider budgets not worth the trouble.

Therefore, what we’ll discuss here isn’t what budgeting entails, because if you don’t already know that, you can find it out with ease. We’re more interested in why you should budget in the first place. Our suggestion, to put it plainly, is that budgeting is a way to amplify the very creativity and adaptability that allow small businesses to thrive.

Budgets’ Reputation

You don’t become an entrepreneur because you have a burning love of spreadsheets. At least, not usually. Being an entrepreneur isn’t supposed to be about budgeting. It isn’t supposed to be about paging through endless columns of variable costs or putting caps on spending. It’s supposed to be about having the freedom to blend innovation and risk-taking with passion and expertise. It’s supposed to be about removing barriers, not building them.

That being the case, small-business owners often see budgets as antithetical to the very spirit of entrepreneurship. According to this perspective, budgets impose stifling limitations. They’re artifacts of mega-corporate culture devised by clammy-handed people in windowless rooms with poor lighting. They may be necessary evils for sprawling, inhuman conglomerates, but when it comes to organizations that rely on individual personalities and individual decision-making, budgets are more burdensome than helpful.

You might say the constraints imposed by budgeting make small businesses less nimble. Since nimbleness is one of their main advantages over larger rivals, budgets actually decrease small businesses’ ability to compete.

Or so the story goes.

Some of it is accurate. For instance, it’s true that passion and innovation go hand in hand with entrepreneurship. It’s true that small businesses should strive to leverage their size into a competitive advantage. And it’s true that budgeting for small businesses is much different from budgeting for colossal corporations.

What’s not true is that budgets impose constraints. Budgets don’t actually impose anything. They merely describe constraints that are already present. Perhaps more importantly, they describe a business’s ability to cope with and even manipulate constraints placed on it by forces internal and external.

Constraints and Entrepreneurial Creativity

If you’re an entrepreneur, you’re aware that your business doesn’t operate in a vacuum. It’s part of a staggeringly complex system. For instance, you have your relatively immediate concerns, such as your employees and your local government. You also have your relatively big-picture concerns, such as national debt and foreign trade policy. No matter what, when you start a small business you’re going to be hemmed in by laws, regulations, and unavoidable economic realities, all of which will have a major impact on how you operate.

In other words, no small business starts out in a position of unfettered freedom. The very conditions that allow small businesses to exist also impose a variety of constraints. Working capital, interest rates, the minimum wage, the minimum competitive salary for professional employees-there are countless factors that limit what you can do and how much money it takes to do it.

You can acknowledge the reality of these factors, but if you don’t have a budget, then you might not know the exact ways they’re affecting you. What particular constraints does a business in your industry have to deal with? Are there some that have a disproportionate impact on you because of the way your business functions? Can you make changes to reduce their impact? Are there constraints that you handle in an especially productive way? Can you turn this productivity into an advantage over your competitors? Do you approach some constraints the way everyone else does, even though you could be doing a better job with them?

These are the sort of questions a budget helps you answer. It doesn’t create limitations that weren’t there before. Rather, it gives you a way to assess the pre-existing limitations that every small business in your industry has to deal with. The more thorough your assessment of those limitations, the greater your ability to work within them, work around them, or in some cases, make them work for you.

Making limitations work for you is where entrepreneurial creativity comes into play. If you have enough details on your business’s limitations, then you’ll be better able to turn those limitations into innovations. A budget will help you marshal your creative energies and find the opportunities for profit embedded in the market’s constraints. It tells you exactly what assets you have to work with, and helps you map out how those assets can be put to the most productive use given the rules of the industry.

After all, most of the market-based constraints you experience will be shared by your competitors, who also have limited amounts of money and freedom. Which of you comes out on top won’t be determined by who has the fewest constraints, but by who does the best job of manipulating common constraints to find the possibilities they hide.

Speed, Spontaneity, and Profit

Small businesses, precisely because they’re small, tend to be better than their larger competitors at taking quick, decisive action. It’s one of their vital advantages. By the same token, it’s one of the challenges that all entrepreneurs are bound to face. You’ll be forced to react on a moment’s notice to emerging opportunities or perils in the market-that’s a given.

What’s less certain is the profitability of your reactions. Obviously, acting or adapting fast doesn’t do much good if it yields a loss.

So what information will you use to make your quick decisions? Do you have a detailed, practical breakdown of your business’s strengths and weaknesses? Do you know exactly how many resources you can afford to redeploy at a moment’s notice? Do you know how efficiently different aspects of your business tend to use the resources you devote to them? Are certain aspects of your business already strained? Are certain aspects flush with the potential for expansion?

A budget gives you a diagnostic readout of your organization. It tells you how much stress the business can handle and which areas can handle it. Hence, it helps you decide whether acting conservatively or aggressively in the short term will enhance your performance over the long term. Without a budget, you’ll be relying too much on guesswork, and many of your quick decisions may be needlessly risky.

Supply-chain Relationships

A budget not only helps you assess yourself, but also helps you assess your relationships with other entities, like vendors and subcontractors. This will be especially important when the market is in flux.

As you know, successful entrepreneurship entails evaluating the vast array of forces that constitutes the market and determining where-for someone in your industry, someone with your passion and expertise-the opportunities and roadblocks lie. But no one can predict with any certainty how the market will behave tomorrow. There will be surprises. Sudden chances and sudden setbacks.

We’ve already noted that the way you respond to these inevitable surprises will play a critical role in the profitability-or survival-of your business, and that your ability to make the right call at the right time will be drastically greater if you have a budget in place. This is not only because a budget tells you about your own resources, but also because a budget helps you deal with other organizations that affect you.

Let’s say you experience a sharp increase in demand for your product. It’s good news, but it brings up questions: Do you have enough working capital to provide your product to a large number of new customers/clients? What are the current resources of each division of your business? How many more resources does each division need if it’s going to ramp up its activities? How efficiently does each division tend to use its resources?

These are all internal questions that may well lead to others, such as: What do your vendor accounts look like? How much new inventory can you afford to purchase? What type of sales will you need if you’re going to pay off the new purchases on time? Can you afford to hire subcontractors to help with the push?

And, of equal or greater importance: What’s your plan for a downturn in demand? Will you find yourself in a precarious position with your vendors? Will you be able to keep promises to new customers? Will you be able to pay your subcontractors for the hours they’ve put in?

Indeed, budgeting can provide invaluable support for all your relationships. As noted on, “your suppliers are in all likelihood mapping out their expectations for the year and you can help them do so by providing your outlook. As a best practice, you should share your budget and the variety of scenarios you might face to see whether they can handle each level of demand” (Field 2010).

Since your business is one element in a network of other businesses, it’s important for you to be able to communicate both your capacities and your expectations to the people you rely on. A budget serves as a tool for facilitating such communication. It gives you a concrete way of describing not only where you stand, but also where you will stand in a given scenario. Thus, it helps foster strong partnerships and avoid uncomfortable conversations.

This doesn’t mean sharing every detail of your budget, nor does it mean sharing some details with everyone. It simply means that guarding your budget like a state secret takes away some of its efficacy. You can use select portions of your budget to assist you in negotiating with critical partners-i.e., you can be prudent about the information you divulge without being obscure. How much do your current business partners know about your budget? Is it enough for them to understand your capacities and your needs?

The Bank

Speaking of business relationships: you don’t want to mess around with the bank. Plain and simple. This is a relationship that should be as friendly and open as possible. And what do bankers like? Budgets. As the American Bankers Association (ABA) says, “You are flying in the dark financially if you don’t have a budget for all income and expenses.”

Come to them without a budget, and bankers are going to feel like you’re wasting their time. They’re certainly not going to be interested in loaning you money (or more money). “Prepare for your financial review with your banker,” says ABA. “Have current inventories, cash flows and balance sheets ready.”

When your banker asks you how your debt is structured, and whether you have an imbalance between long- and short-term debt, what are you going answer? Trust us: if you show up to that meeting with a budget, you’ll be glad you did.


Just as the market’s unpredictability makes budgets useful, it also makes them fallible. A budget is like any plan: it will contain inaccurate predictions and require ongoing revision. That’s simply a condition of commerce; some academic models are predicated on entrepreneurs having perfect foresight, but we all know that’s not the case. Businesspeople, even the world’s most celebrated financial prognosticators, get it wrong sometimes.

That doesn’t render planning completely useless. Even if your plans don’t entirely match the way reality unfolds, they serve as benchmarks against which you can assess your progress. They record where you wanted to go, where you actually went, and why the two didn’t coincide. In that way, they indicate which areas of your business are performing well, and which need to be modified in order to meet next quarter’s goals.

When it comes to small-business planning, certainty is off the table. Nothing is guaranteed, including budgets. But setting expectations and monitoring progress remain indispensable to long-term survival. They help small-business owners analyze why they’re drifting off course, and also help them formulate corrective measures.

How do you see a budget? As a static report that turns old news into flimsy predictions? Or as a series of living documents that records how you adapt to change?


Thorough budgeting calls for a great deal of effort, and many small-business owners can’t spare the necessary time or energy. Frankly, while the minutiae of budgeting are of interest to the entrepreneur, they are not the entrepreneur’s main job. If they were, then a good head for numbers and a background in financial analysis would be prerequisites for entrepreneurship. Yet plenty of small-business owners have succeeded without an affinity for mathematics or statistics. Entrepreneurs don’t all begin as certified public accountants.

That being the case, most small-business owners hire a bookkeeper. A bookkeeper collects and organizes your financial information, which, again, is time-consuming and requires close attention to detail. Too much time and too much attention for small-business owners to sacrifice. But even if you’re not involved with gathering and sorting your financial information, you needn’t remain aloof from it. To get the most benefit from budgeting, you’ll want to be accustomed to reading your financial statements and locating important data in your financial system. When you meet with your bookkeeper, are you talking about his or her methods? Is he or she showing you how your financial information is organized? Are you able to navigate your bookkeeping software on your own, so as to pull up specific pieces of data without your bookkeeper’s assistance?

Proper bookkeeping is important, but it rarely goes far enough in the analysis department. You’ll notice that the bulk of our discussion has revolved around using budgets to orient yourself in the market-i.e., using them to take advantage of opportunities and to minimize risks. That requires more than tabulating numbers; it requires interpreting them. It requires fitting your numbers into a larger picture.

Is there anyone in your organization besides you who (1) monitors your finances on the close-in, detailed level, and (2) relates the details of your finances to your big-picture performance? If not, chances are you’d benefit from a dedicated financial person. Someone whose duties involve painting a comprehensive picture of your financial universe-more comprehensive, that is, than the picture you’re able to paint on your own, simply because you have other things to do.

As with most aspects of running a small business, getting the most out of budgeting requires skillful delegation. If a budget is going to inform your decisions at major turning points, then it’s a good idea to have someone to consult with, someone who’s been looking at the same numbers as you while also looking at the same problems.


The value of a budget doesn’t rest on the accuracy of its predictions or the stringency of its cost-cutting. Instead, the value of a budget rests on how well it articulates your business’s financial strengths and weaknesses. A budget exists to help you balance risk against opportunity, to help you determine whether aggressive or conservative action is the right thing for the moment. It also exists to help you communicate with your business partners-to, in other words, cultivate healthy, mutually beneficial relationships with the organizations you rely on.

Above all, a budget exists to de-mystify, or express in concrete terms, the limitations imposed on your business by the market. Thorough budgeting, especially when undertaken with the right personnel, can enhance your creative initiatives and merge adaptability with profit. In short, budgeting is a way to sharpen, not blunt, a small business’s advantages.


American Bankers Association. Ten tips for small business owners during tough financial times.

Field, Anne. 2010. How to budget and manage inventory for 2011. Inc.

Reduce Your Monthly Budget By 20% Using Simple Budgeting Strategies

Welcome to the world of “Budgeting“; a very important, yet widely neglected and misunderstood topic, in most households.

I am involved in several home-based businesses, but the most important of these by far, is managing my Monthly Household Budget. Notice that I used the word “business” to describe managing my budget. Unlike most people, I treat my monthly expenditures as a business-always looking to improve the services that I pay for by finding better deals, and reducing resultant costs. I always aim to get the best bang for my buck through increased services at cheaper costs. When I find a particular budget item that can save me $100 per month, I do not only look at this as a savings, but I treat it as if I just received a $100 per month raise, which translates into a $1,200 per year salary increase (assuming that it is recurring monthly). Yes, by being diligent and resourceful, I just gave myself a $1,200 raise for the year, which, by the way, is cumulative in effect, year-over-year. Wow! Now imagine if I can replicate this feat for multiple items in my budget, again and again. That is going to be some kind of hefty raise that I am giving myself. You see, by treating my monthly budget as a business, I provide myself with a means of increasing my disposable income and savings. I do not need a boss to give me a raise; through diligence and resourcefulness, I can give myself a raise, again and again, over and over, year over year. The long-term, cumulative effects of doing this can be quite staggering, to say the least, and one’s overall net worth will increase substantially over the years, by putting this “business practice” in place.

I am an extremely compulsive and diligent budget person. Regardless of how large or small a household expenditure is, I record it in a tracking spreadsheet. I think my wife thought that she had married some kind of compulsive lunatic, when I implemented this system in my household. But, as time moved on, she recognized and understood the value of the budgeting system that I put into place in our household. Moreover, I have taught my 3 children the value of money and budgeting, and have attempted to interject these principles into their lives as much as possible. No doubt, that as adults, they will be much better off because of this.

I know exactly how much money I am spending in each category of expenditure on a daily, weekly, monthly, and yearly basis. I can honestly say that I have no friends, family, neighbors, or acquaintances that are as diligent and passionate about budgeting as I am. As a matter of fact, most people do not truly understand the art of budgeting. Sure they use the words “not in my budget” in conversation; but few, if any, actually understand what their budget looks like, how much it costs them to live each and every month, and how much money is going out-the-door in regard to their bills and expenditures for goods and services that they have procured. Many people I know constantly waste their money on frivolous spending, and neglect basic budgeting techniques and practices. Some of these areas of budgeting can individually save them hundreds of dollars per month, if implemented.

I have broken my budgeting techniques down into a series of categories listed here. Each category should have one or more specific Strategy items associated with it, that you will need to come up with. Some categories should have more budget strategies listed for it than others. Some budget strategy savings ideas will be relatively small in nature, but please do not discount these. After all, these little items do add up, and the net effect of the sum of all applied budget savings strategies, is what counts. That said, here are my budget categories that require addressing:

  • Food
  • Shopping
  • Clothing
  • Utilities
  • Lawn/Garden
  • Entertainment
  • Household
  • Weddings and Gifts
  • Banking/Finance/Bill Paying
  • Automobile
  • Vacation
  • Medical/Dental
  • Other Insurance
  • Taxes
  • Education
  • Mortgage
  • Cost of Living

Next, I want you to develop a personalized Budget Action Plan while addressing each of these categories. I want you to buy a notepad (or alternatively, feel free to use a word or text editor on your computer, smart phone, or e-reader to accomplish the same purpose), and create 2 columns:

  • Category: Strategy
  • Budget Action

Traverse each category, one-by-one, and start listing individual Budget Strategies for each category above. Concentrate very hard on how a designated category and budget strategy item can seriously be applied to your household budget situation. Keep in mind that some Budget Strategies may seem overly simplistic or obvious. If relevant to you (and most will be), write down the budget category and budget strategy item, and one or more budget actions that you need to implement to put the category and strategy into place, keeping your personal situation in mind. Continue to do this for every Budget Strategy, in every Budget Category. Again, make every attempt to apply each category and strategy to your situation. Do not ever dismiss a particular category and strategy item because it only saves you $10 per month-these small items add up fast, and the overall aggregate monthly savings, when all is tallied up, will simply amaze you! When you have completed your Budget Action Plan, review it, and start implementing your Budget Actions, one-by-one, on a monthly, or need-be basis. By the way, it would not hurt if you went through your Budget Plan multiple times. This may easily facilitate new ideas and additional Budget Actions that can be implemented in your Budget Action Plan.

If you are honest with yourself, extremely diligent about implementing these budget actions, and have the necessary discipline to stick with it, there is no reason why you cannot reduce your monthly household budget by 20% (or more) in a given year. This should be an on going process, year-after-year, as you continuously review your expenses annually, to obtain that raise that you deserve!