We often encounter resistance at this time of year as we begin to speak of budgets with our small business friends. The feeling is that budgeting is a time-consuming process with little benefit. What's the point. We disagree. This blog is the first of a three-part series to make our case for the need for small businesses to devote some time in the next two months to establishing a good budgeting process.
Before you can create a budget, you need to know your long term (the next 5 years) and short term (2010)goals and your strategy for reaching those goals. So pull out your old business plans and take a look. Have you been following your plan? If you have not been following it, why? With the changes in the economy, do you need to rethink the direction of your company or are you just taking a little business detour?
If you do not have a business plan, then now is the time to at least formalize your operating strategy. What is your business? What differentiates you from other businesses offering the same services in your industry? Who is your target market? Are you reaching them? Do they know that you exist? After you have given some thought to these questions, take out a piece of paper and draw 3 columns with the following headings: 5-year vision, 1 year strategy, and tactics.
Under the 5-year vision, write down specifically how you want your business to be defined. Where do you want to be in 5 years? For example, you might want to be known in your market as the cutting edge new idea generator. Be clear here to define on paper who your target market is for the cutting edge new idea generator. Who do you expect your customers to be? Do some research to find out who these people are; who they are currently buying from so that you know who your competitors are; why they are buying from them. What is happening in your industry as a whole? Do you need to be considering alternative products and services if you think that your current products are going to be obsolete in the future? Under the 5-year vision you might also want to consider internal operations as well: what skill positions do you think you will need? What work environment do you want to create?
Next analyze where your business is compared to that 5-year vision. How close are you to achieving those results? What do you need to do to get there? Under your 1-year strategy column, write down where you need to be by the end of 2010 in order to be on track for your 5-year vision. This may include some specifics as to the dollar amount of sales that you need to achieve or the staff that needs to be in place by year end, etc.
Under the Tactics heading, start writing specifics. This is where you place your need to develop your specific advertising and promotion plans, your foray into social media, your need to create a specific video for your website. You might have a tactic to develop job descriptions and procedure manuals for your staff. Be as specific as possible here as this is the content that you will use to create your budget.
Now that you have your vision and strategy in place, you are ready to create a budget that helps you to reach your goals as opposed to a budget that merely states how you have been spending your money over the past few years. Tune in next week for a discussion on how to use this information to create a good flexible working budget.