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The Best Financial Tool for Business Owners

June 14, 2011
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If there were a tool that helped you create crystal-clear plans, that provided you with continual feedback on how well your plan was working, that told you exactly what's working and what isn't – allowing you to consistently make smart business decisions to keep your business on track for success – wouldn't you want to take advantage of it?

Well, there is such a tool. It's called the Budget vs. Actual report.

Clarifying Your Plan
Clarity is power. The clearer you are with your business goals, the more likely you are to achieve them.

Creating a budget forces you to drill down in to the details of your goals. It prods you to think about how one business decision affects all other aspects of the company's operations.

Example: Say you want to grow your sales by 15% this year. Does that mean you need to hire another salesperson? When will the business start to see new sales from this person? Do you need to set up an office for them? A new phone line? Buy them a computer? Do you need to do more advertising? How much more will you spend? When will you see the return on your advertising expenditure?

You see, a budget is really a planning tool that makes you clarify your dreams. And planning is the first step in making your dreams real.

Navigating the Ship
Once you've clarified your goals, you start making business decisions to help you reach your desired outcome. Some of those decisions will be great and give you better than expected results. And some decisions will give you poor results.

This is where the Budget vs. Actual shines.

When you compare your budgeted sales and expenses to your actual results, you see exactly how far you are off your plan. Sometimes you need to adjust your plan (budget) and sometimes you need to focus more attention to the areas of your business that are not performing as well as you planned.

Either way, you are gleaning valuable insights into your business.

It's like sailing a boat. You are off-course most of the time – but having a clear goal and making many adjustments helps you reach your destination.

Just Do It
Nike knows the power of the phrase "Just Do It." We often know what we need to do but don't take the necessary action.

It may seem like a huge hassle to create a budget and then create a Budget vs. Actual report every month. But as with any new skill, although it's hard at first, it does get easier.

You'll feel energized after it's done. You may even have fun.

For more essential budget tips, check out last month’s feature on business accounting: The Truth is in the Numbers.


Richard L. Lipton CPA & Associates LLC, located in Florham Park, N.J., draws on its founder’s 10 years as a stockholder and manager of family-owned Sam’s Tire Co. in Paterson, N.J.

Richard L. Lipton CPA & Associates LLC “is structured to personally serve large and small clients who have a need for business consulting services as well as accounting and tax services. We have even developed a niche in the area of forensic accounting. Our clients have realized that this combination of skills is extremely valuable in providing the highest quality professional services in today's and the future's economy.” – Richard L. Lipton CPA
 
Contact Richard L. Lipton CPA & Associates LLC:

Call: 973-520-8123
E-mail: rich@liptoncpa.com
Web: www.liptoncpa.com