Walsh says it’s critical to base projections on actual data trends that tie to metrics and key performance indicators (KPIs). This is especially important on the income side of the equation. “In many cases, business owners are too optimistic about income, or they fail to recognize that it can take months from the time they onboard a new client to the point where significant revenue arrives,” he says.
Typically, last year’s sales and expenses serve as a good guide for establishing or updating a budget, though recent activity and current events must be factored in as well. For example, if you received income from a one-time, big project for a client, that could distort your budget planning for the year ahead. On the other hand, if your client base relies on services that generate a steady month-to-month income stream, predictions are fairly straightforward.
On the expense side, “If a business paid a vendor $10,000 last year and prices have risen by 5% in recent months, it’s reasonable to add the incremental increase to the annual sum and spread it across 12 months,” Walsh explains.
Deep Visibility
The final step in the budgeting process should be a ruthless inspection procedure. This means examining every major line item and understanding what’s essential, what’s desirable, and what can go. For instance, it’s often possible to eliminate or reduce expenses by ending a lightly used service or downgrading a subscription. Sometimes, it may also be possible to obtain software or services at a discount or at no charge because you’re a certified reseller. In fact, many companies cut their expenses by 20% or more simply by reviewing everything, Walsh says.
Channel pros should review their budgets at least every few months. “It should serve as a dynamic working tool,” Walsh continues. Not only should you examine the budget for clues about how to run the business at any given moment, but you should also reexamine whether the criteria in the budget are leading to accurate results. “If you’re spot on that’s great, but if you aren’t on the mark then it’s important to make adjustments,” Walsh adds. “The key is to ask ‘why’ something is happening and what you can do about it.”
Maintaining a strategic focus throughout the budget review process is critical, Palachuk says. One common problem is that IT owners tend to look at the expense side of the ledger tactically but the income side strategically. “It’s possible to cut expenses faster than it is to find income, but the risk is that you become too reactive and actually undermine the business,” he notes. “You really have to keep the focus on how you can use the budget to drive maximum value for customers and the business.”
Image: iStock Photo
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About the Author
Samuel Greengard, a business and technology writer in West Linn, Ore., is the author of The Internet of Things (MIT Press, 2015) and Virtual Reality (MIT Press, 2019).
