The last time you budgeted for your business, I am sure you did it the way 99% of owners do. You projected your revenue based on what your expectations were and prior history. You then moved on to expenses and again, projected this based on the history of the business. In the end, you scrolled down to the bottom of the spreadsheet and looked at how much profit you were going to make.
THIS PROCESS IS RIDICULOUS. As the owner, you are likely the most valuable employee (or “MVE”) of the business. If anyone at your business doesn’t show up tomorrow, the world keeps going around. However, if you don’t show up, your employee’s and customer’s worlds stop. This is how I know you are the MVE.
Now think of your second most valuable employee. What happens if you don’t pay them exactly what you promised. What if you short them $1,000 on their next paycheck or worse, don’t pay them at all. When they ask you about it, you tell them, “Sorry, we had a bad month so I can’t pay you”. If you don’t know what will happen, I will clue you in….they are going to leave. Most owners would never treat any of their employees this way, much less their second most valuable employee.
So if we wouldn’t do this to our runner up MVE, why do we do it all the time to the real MVE? You know what I mean…last month things came up a little short so you took less out of the business. No worries, the world keeps turning because you keep showing up. This turns your life into a yoyo…some months are great, others not so much.
In case I haven’t made my point clear enough….stop jerking your best employee around. Now is the time in an infomercial where the audience would be cued to say “There has to be a better way”. And there is!!!
When we budget with business owners, we follow a process called budgeting for profit. Profit is not the last line we look at, rather, it’s the next right after revenue. The line after that is taxes. Once we get those, we start filling in the expenses.
The great thing about this process is it forces owners to only spend money on what is driving their business. This is where they get creative…it is also where their business starts to increase in value.
When business owners start to focus on their customers and look at how their expenses create value for their customer, things change. Furthermore, when the function a business is paying for gets too expensive, they must be creative in figuring out how to keep the benefit but lose the cost. This is where an owner can really build value in their business.
Some of the best business processes in the world have been created out of this necessity…we need the benefit but can’t afford the cost. All of this start from simply fixing the budgeting process.
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