IN THE DAILY CRUSH to get things done—everything from supervising technicians to supporting clients—it’s easy for channel pros to overlook a basic but critical fact: “An inability to budget and forecast effectively can have severe consequences,” states Shawn Walsh, CEO of Encore Strategic Consulting.
Those can include erratic cash flow, unpredictable expenses, inability to meet payroll, and dependence on a credit line to pay for basic items.
“There can be a whipsaw effect that seriously undermines the ability of the company to operate efficiently and profitably,” says Manuel Palachuk, head coach and president of Manuel Palachuk International and author of Getting to the Next Level: A Blueprint for Taking You and Your Business to the Top.
Although the idea of budgeting may seem burdensome, experts say that it’s at the heart of operating a successful business. Moreover, ignoring the task doesn’t make it go away. Without a budget, you’re flying blind—and increasing the risk of making bad decisions. “The idea that you can somehow intuitively know what’s right is deeply flawed,” Palachuk says. “An excellent budget is critical.”
A sound budget makes it easier to spot changes and make adjustments in response to something as simple as unexpected expenses or as drastic as a pandemic.
Money Matters
The lack of a formal budget process along with some type of dashboard that provides visibility into key financial data are common issues for many channel pros. “When I ask businesses if I can see a budget, most are unable to produce one,” Walsh states. “Without financial insight, you’re not apt to make optimal business decisions.”
Creating a formal budget smooths financial turbulence and introduces a more predictable and streamlined cashflow. The insights gained from budgeting can deliver other benefits as well. For example, you can determine when to upgrade and invest in new equipment, systems, and software, or make minor adjustments in payment terms or due dates with a creditor, lowering costs and improving cash flow.
A formal budget helps a business grow, says Allen Edwards, president of consulting firm Eureka Process, because you can use revenues, margins, and other factors to maximize advantage. “It’s possible to manage the business far more strategically because you actually have visibility into everything,” he says.
In fact, with a grasp of numbers, ratios, and percentages—and an ability to view and understand the relationships between investments, costs, and outcomes—comes a more dynamic business framework. “You can begin to experiment with numbers and slide them up and down to see how they impact and influence your objectives. You can see what actually makes a difference,” Walsh points out.
By the Numbers
A common misconception is that budgeting is a complex process, or dependent on commercial accounting software, Edwards says. In most cases, a basic spreadsheet that consolidates expenses and revenues into a handful of key areas is more than adequate. At any point, executives can drill down further, if necessary.
Getting to a P&L that delivers clear visibility into the business is crucial. “For most businesses, there’s a need to clean things up,” Edwards says. Every bucket of revenue must have a corresponding cost of goods—actual expenses—to go with it. “That way it’s possible to subtract numbers and see the gross profit,” Edwards says. While financial programs can aid in the process, human insight is crucial. “You have to do the math, but you also have to understand it,” Edwards explains. This enable you to forecast changes in revenues and expenses and adjust business practices as conditions or prices fluctuate.
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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).
