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How does your company use budgets? (or does it?)

Discussion in 'Accounts and Finance' started by Bruno Moreira-Guedes, May 1, 2017.

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  1. I would like to hear from you. I have a few questions and would like to know how entrepreneurs use to deal with this matter.

    A budget is the quantitative part of a financial plan. It's where you plan your income, costs, expenses, etc.

    So, my questions are:
    • Do you make a budget of your future exercises? If so, for how much time ahead? And how often?
    • And why do you do it? Or, if you don't, why don't you?
    • If you do budget, is it a central decision that you inform your employees after it's done? Or do you hear them?
    • Is your budget usually predictive about what actually happens?
    • How do you ensure that?
    And please remember, there's no right or wrong answers, just different practices that usually vary from company to company, and often isn't made. So, don't be ashamed to share yours!!
  2. JohnHolling

    JohnHolling Serial entrepreneur, Investor, Mentor Administrator Moderator Member

    Hi @Bruno Moreira-Guedes, this is a great thread topic! I'm interested to see what people have to say about budgets in their businesses.

    I imagine I'll bring tears to the eyes of "traditional" business people, but I've never used formal budgets in my businesses. Once a business gets to a certain size, with multiple departments and people running those departments, budgets are necessary.

    But if you have a fairly small team, budgets seem a bit formal for my taste. I know where my businesses are financially at any given moment, and that includes income and expenses. I know if we incurred an unusual or one-time expense that will affect cash flow. And I know projected earnings and expenses. So in that way, I guess I'm using a budget, but it's not in the form of a budget that gets reviewed and followed. It's just an exercise that allows my key teammates and me to have our fingers on the pulse of the business.

    Not sure if that makes sense, but there it is. :)

  3. It makes total sense, @JohnHolling!! You follow a practice that works for you!!

    And, as you said, you have projected earnings and expenses, so it's a form of budget. When I was running my company, I used to do almost the same. I used to budget for business plan purposes, but I never used them as a control tool. My budgets actually had no use at all, except for simulating some scenarios and checking my prices. Looks like your use is ahead of mine.

    I'm asking because as a business student today I'm learning about budget. Well, there are many ways and not a right one to manage budgets (and financial planning), and I think it depends a lot of the context. Trying to push a heavy traditional budget in some companies would be a total waste of time (and money), and this is why there are alternatives. And also, there are some academics advocating that companies abolish budget at all, and their points make sense too.

    John, would you mind if I ask you to what extent people (besides you and your key teammates) take financial decisions and/or spend actual money in your business(es)?
    djbaxter likes this.
  4. JohnHolling

    JohnHolling Serial entrepreneur, Investor, Mentor Administrator Moderator Member

    Yes, @Bruno Moreira-Guedes! There are many approaches, and none is right or wrong. What matters is that it works for who is using it.

    As for who in my companies has spending authority, it has primarily been the partners. There are two exceptions though: one is that if it's a planned recurring expense, we will authorize a manager to encur those expenses on behalf of the business. For example, we used to hire in groups, and the training manager would buy pizza and soda for the new-hires without getting permission each time.

    The other scenario isn't exactly spending. In any business I have, customer-facing team members are authorized to give refunds and credits up to a certain limit. This allows for a much better customer experience than having to wait for approval from someone else.

    Good luck in your class!
    djbaxter likes this.
  5. Raza-Associates

    Raza-Associates Member

    it is very hard almost impossible to predict Budget for business in starting. Predictive expenses in most cases exceeds the predictive values. Budgeting is strong tool but once business is established then budgeting is very important to run things smooth.

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