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In these uncertain economic times, it can be argued that budgeting is more critical than ever. So what can you do about it? Now that you have recently completed your legal budget for the upcoming year, here are several “common sense” improvements you might make for implementing an operating budget.
Be conservative. It is far better to err on the side of understating income and overstating expenses than it is to do things the other way around. That will help eliminate unpleasant surprises at the end of the year. If things work out better than anticipated, consider the surplus to be a bonus.
Remain flexible. Essentially, a budget is a projection of the income and expenses of your entity. In other words, it is based on calculated estimates at the beginning of the year, but that does not mean it should be rigid. Use your recent history as a guideline to develop an operating budget, but leave some room for flexibility.
Divide up expenses. Certain costs, such as the monthly rent bill, usually are fixed throughout the year. But dollars spent on other items—for example, supplies and equipment—may fluctuate throughout the year. Identify the unpredictable expenses and separate them. Not only will this provide clarity for your entity, it may lead to strategies for minimizing costs.
Monitor the results. When your entity pays its bills each month, see how the numbers match up against your projections. You may have to adjust your operating budget to reflect actual income and expenses. Remember that your operating budget is a “work in progress” - not a finished product.
Discipline. Putting a plan down in writing can help you curtail unnecessary expenses. For instance, without an operating budget you might drive down to the local computer store to buy the latest gadget as soon as you receive a big check. With budgetary restraint, you can earmark the funds for necessary expenses.
Plan for the future. Once you become adept at pinpointing patterns through your operating budget, it will become easier to plan long-term growth and development. Again, use a healthy dose of caution: It is better to be conservative than to make projections your entity simply will not attain.
Get started now. Although it takes time to develop a detailed operating budget, roughing out a rudimentary version is generally better than having no budget at all. If you wait until another year rolls around to take this approach, it may be too late.
Last but not least: Do not hesitate to seek outside assistance. You can rely on professional advisers to help create an operating budget for your particular entity.
For further information, contact Lewis, Hooper & Dick, LLC at (620)275-9267.
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