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David Brown

Use Your Budget Like a Speedometer

Without timely data it’s almost impossible to know how you’re doing.

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A GOOD BUDGET is like a speedometer on a car. Let’s say you are going out for a drive one day and you need to get to a town 200 miles away. You leave at 9 a.m. and know that you need to get there by 1 p.m. To achieve this you will need to travel at somewhere around 50 mph for the entire journey.[

Comparing this to your business performance, your “destination” would be to say you want sales of $1 million. Setting the timeframe for your journey is like saying you want to achieve this goal over the coming 12 months.

The time to rectify your budget if you are falling behind is after the first few days of the month, not when the month is over. Use your speedometer, and don’t wait for that next roadside sign to come along.

Now imagine you start your journey and discover your speedometer isn’t working —and what’s more there are no signs along the way telling you how much farther it is to your destination or how far you have come.

Frustrating isn’t it? You don’t know whether you are ahead, behind or on time to reach your destination by 1 p.m. You know how much time there is but don’t know how far you have to go.

The likelihood of achieving your destination in the required timeframe has now become that much harder to achieve and is left largely to guesswork.

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From a business perspective, if you prepare financial information for your business monthly or quarterly, you will have some idea of how you are going relative to your financial destination — but as with your car speedometer, it can be hard to know whether you are on track during the periods between the reports.

Financial information is mostly historical — a bit like that roadside sign you saw 10 minutes ago that told you that you still have 120 miles to go. But without that speedometer, you won’t be able to work out how you are going until you see the next sign.

An effective budget (or sales plan as we prefer to call it) can help provide timely, relevant information as you need it. This is the equivalent of your speedometer telling you right here and now whether you are ahead or behind on your speed. A good sales plan allows you to measure your business daily so you know whether you need to put your foot on the gas or not.

So break down your budget into daily targets across each department and monitor it every day during the year.

The time to rectify your budget if you are falling behind is after the first few days of the month, not when the month is over. Use your speedometer, and don’t wait for that next roadside sign to come along.

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