Business owners know it: Somewhere between profitability and sustainability lies the landmine known as vulnerability. Budgeting provides maximum visibility into that uncertain future.


But budgeting is no small issue, and in the channel, challenges are magnified by rapidly changing business conditions and technologies. “Many businesses can’t budget effectively because they don’t track the right data,” observes Michael Speyer, a senior analyst at research and consulting firm Forrester Research Inc., in Cambridge, Mass. “They aren’t clear on where they are and where they need to be. They have no vision of the future.”


Make no mistake, budgeting skills often determine whether a company flourishes or founders. Not only does a budget improve forecasting and cash flow, but it also helps a business manage growth—as well as unexpected downturns. An effective budget process requires more than a cursory glance at the accounts payable and accounts receivable ledgers, however. It’s a dynamic process that depends on the right software and business practices.


MONEY MATTERS
Budgeting may not seem like a terribly complicated endeavor. You track overall expenses and calculate projected income in order to develop a plan for spending. And it’s not as if you have to go at it with a calculator. A growing array of accounting applications, such as Intuit’s QuickBooks, Sage Software’s Peachtree, and Microsoft Office Accounting Professional, offer built-in budgeting tools. A spreadsheet can also be used.


The resulting numbers are only as good as the underlying calculations, however, and they must fit an organization’s business strategy. A tangle of factors, including late payments, nonpayments, unrealistic sales forecasts, and the inability to recognize significant changes in the marketplace—or the company—can cause numbers to go askew and the budgeting process to break down. “A budget requires ongoing attention and constant adjustments,” Speyer explains.


Budgeting can be especially vexing for firms that rely heavily on one or two customers. David Cieslak, a principal at Arxis Technology Inc., a reseller in Simi Valley, Calif., says that it’s always best to develop a broad client base. But for companies that can’t do so—such as start-ups—it’s essential to communicate closely with key customers to avoid glitches and misunderstandings. It’s also wise to begin accumulating data about average costs and how gaining or losing customers affects the P&L statement.


Not surprisingly, companies in growth mode may need to monitor their budget more closely, and update it on a monthly or quarterly basis. Yet, Cieslak says that the underlying principles of budgeting remain the same.


“If a company has established benchmarks and understands its average unit costs, then it is possible to apply them to what-if scenarios,” he says. “A company can adjust its spending as its income changes.” If the firm requires a new office or needs to add employees, for example, it simply plugs in historical information and extrapolates on costs.

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