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Budgeting Essentials Blog

Helping you master the practical essentials of Budgeting, Cash Flow, Accounting and Debt Relief.
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Budgeting – when you have a good final draft step away

Last week I talked about keeping your monthly cash flow positive. If you miss that post, you can read it HERE. This week’s topic is when you have a good final draft step away.  It’s important when you think you have a good final draft, to step away and not look at it for couple of days. Today I discuss why.



When you think you have a good final draft, you need to step away from it.  Let’s start with the why on this one.  You have been working on your budget for a number of weeks, maybe months, and you’ve got a great budget.  Why do you need to step away?  You need to step away because you have been working on your budget for a number of weeks or months.  You have been deep in the detail of what you have been working on.  Your mind has been focused on the items you are working on.  By stepping away, you give yourself a little distance from your budget so that you can get perspective on it.  Now that the detail work is complete, you need to give it a good high level review.

A good way to approach this is to come back and look at it as if you were reviewing someone else’s work.  Don’t think about the assumptions you made in your head, but only look at what you have recorded.  Make sure what you have stands on its own.  Are the assumptions you made clearly documented so you know what they are when you look at the budget later in the year?  This can be a real brain teaser if you don’t keep good notes when you are doing this.  Put your notes right on the bottom of the last summary page so that you don’t have to hunt for them when you need them.

Is the budget comprehensive and complete?  This is where you look to see if you have missed anything.  Go through every aspect of your business and make sure it is represented in the budget.  The areas you are most likely to forget are the infrequent items that you only pay annually, semiannually or quarterly.  The longer it has been since you paid it, the more likely you are to forget to include it.  You also need to look for expenses that you don’t pay every year.  One of the companies I worked on had a license fee in excess of $20k that came up every other year.  A miss of that magnitude can make it very tough to make budget when you forget to include it in your budget.

Does it make sense?  This is especially an area that you need to have some distance from the budget to see easier.  After working on the details of an item, you can be looking at the numbers so closely that you get the right number but not the right sign.  Let me give you an example of this.  One of the organizations I worked for manages apartment buildings.  When budgeting the revenue for each building we always started with what the revenue would be if every unit were full.  Then we would budget for vacancy, which would reduce the “full” revenue.  If the vacancy got put in as an addition to revenue instead of a reduction, the net revenue would end up being higher than that full revenue.  The “makes sense” test for this was to make sure the net revenue subtotal was smaller than the “full” revenue.  This same thing can be applied to sales returns, discounts or any reductions you have in a section.

Putting the wrong sign on a number can be a tough mistake to overcome.   Adding expenses to revenue may look good for your budgets bottom line, but you can’t spend money you don’t actually receive.  Wrong sign mistakes are also twice as bad as what the line item was.  Here is a simple example.  When you add instead of subtracting you get numbers like this: 100 + 10 = 110.  But when you subtract like you were suppose to you get: 100 - 10 = 90.  When you take the difference between the wrong number (110) and the right number (90) you get this: 110 - 90 = 20.  So your mistake on the sign on the 10 ends up giving you twice as much difference, 20 (10 × 2).

You can see that it is important to step away from your budget when you think you have a good final draft.  Doing so helps you change your focus from detail to overview, which will help you see items that you may have missed or mistakes you may have made.  This will save you from unnecessary scrambling later in the year when you figure out that you missed something when preparing your budget.  That will save you time as well as help you put more of your hard earned money in your pocket!

If you know someone this post will help, please share!  Scroll down to the comments section and leave me a comment on this post.  If you aren’t already a subscriber, sign up for notification emails and other promotions!  Have a great week!

Copyright

© 2018 Dan Heiland 2018 Kat Heil, LLC

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