Do you really need an annual budget for your company? Maybe you’d rather not make one. After all, it’s a lot of work. As long as you’re looking to grow your business more this year than last year, everything will work out without a budget, right?
Stop right there — don’t go down that path. There are more reasons to create a yearly budget than just keeping track of money and having a point of comparison for growth.
Accountability for financial goals
If you’re creating a budget for your company, you should be doing so with all members of your management and leadership team.
Why? A budget put together by a team results in more company-wide belief and buy-in versus a budget that’s been created by a single person. If the owner just rolls out the budget, it becomes the owner’s budget; the team won’t care about or believe in the numbers. But if the team has worked to build the budget and come up with next year’s goals, there will be ownership and team accountability attached to those goals. People will want to hit the numbers they said they would.
Pricing for the upcoming year
If you don’t know what your expenses for the next year will be, roughly, or how many hours you estimate you’ll be able to bill, you can’t know if you’re charging the correct price for your work and services.
Because of this, your annual budget should be the baseline for setting your selling price. Use your budget to make sure you’re priced properly to cover your expenses, see a healthy profit for the year, and, most importantly, expand your company. Without a budget – where you’re projecting your costs for the upcoming year and creating a plan to cover them – your price is likely to fall short of where it actually needs to be.
Many companies base their selling price on what a few close competitors are charging. The problem with this approach is that no two companies are alike, so a price that works for one company likely won’t work for another.
At Nexstar, we believe in a full budgeting and planning approach. We work with our members to create budgets based on historical performance and projected performance for the next year, and we create plans for how they’re going to achieve their company’s goals. We guide leadership teams through all the budgeting and planning steps needed for business growth.
We strongly urge you to start reviewing your company’s past performance and setting a realistic budget every year. Without a solid budget, you’re just hoping for success without a plan – a dangerous game to be playing with your employees and company.