Nine Ways to Budget Strategically to Stay on Course

So that's how I look at budgeting: It's a process, not just a budget. What's really important about budgeting -- and where you get the real benefit for your business -- is in completing the full process. That means you develop a good budget for the beginning of the year and then carefully manage changes -- budget plan vs. actual budget -- throughout the year. Here are nine tips to help you develop a good budget:

1. Your budget will be wrong; all budgets are: Budgeting means guessing the future -- and it doesn't have to be an accurate guess to be vital to management. If you don't have a budget -- even if it's off -- you can't work with it to correct your course.

2. The review process is absolutely critical: It isn't the budget itself that makes the budgeting worthwhile. It's the review that comes regularly, focusing on what's different from the budget. That means comparing budgeted expenses to actual expenses.

3. The most important single point is the review schedule: Never finish a budget without setting a schedule for budget review. That means when, where and who will attend the meeting. As my company grew from just me to 40 employees, we set up a regular budget review the third Thursday of every month, giving us enough time to close the month. It doesn't take long. We bring in lunch and we're done by 2:30 p.m. Budget review is a powerful management tool. Bringing your people together to work on the budget builds an automatic peer process, pride in the performers and incentive for those who can do better.

4. Keep the assumptions visible: The first agenda item in the review meeting is to look at the assumptions. What's changed? How does that affect our budget? We live in constant change, so good budgeting keeps the change where we can see it and manage it. Sticking to a budget isn't necessarily the best course. Managing a budget, by seeing how assumptions have changed and correcting the course, is better.

5. Keep it simple: Try to build the budget so the information that comes out matches the people responsible as much as possible. Keep it summarized so you can see it well. If you divide the information into lots of detail categories, all you see is the trees, and management requires seeing the forest. Build it so you can summarize and aggregate.

6. Tools, tools, tools: You may be like me; one of my weaknesses is that I get lost in the tools -- the accounting software, for example, or the management database -- when what really matters is the human process, the discipline to do things right. Just in case that's true, let me offer some battle-scarred tips about the tools:

• Your bookkeeping software isn't the problem. There are lots of competent software tools that help you keep track of the money and manage the budget. Some are better than others, but the best one for you is whichever one works with easy data export from your bank.

• Usually banks offer two or three options for data links. Let your bank do the heavy lifting of data entry. I've worked with Quicken, QuickBooks, Microsoft Money, Accpac and several versions of Sage and Peachtree. Right now my favorite is Netbooks. But the software isn't the problem. If your software doesn't talk to your bank, look into that and consider switching. If it does, then software isn't your problem.