Some people don’t do budgets because they think they’ll never be right. And, given our current fluctuating and uncertain times, those people are probably dead on. A rigid budget doesn’t serve you well when one quarter can look dramatically different from the next. However, a more powerful way to run your business is to have a dynamic budget.
What is a dynamic budget?
Remember when we introduced How to Make Budget Planning Work for You? We suggested being flexible and provided tips on how to use your budget as a tool. With a dynamic budget, you go in routinely (quarterly) and adjust budgets to what’s really happening in the business. For example, if you expected to pull in business but you didn’t, you will need to scale things back. The dynamic budget is all about having adaptability with your business.
Using your budget as a tool to manage
The major benefit of having a budget that fluctuates with your business is that it actually helps you manage more efficiently. When you routinely take a look not only at your revenue forecast but also your expenses, it puts it all into perspective. Suddenly, answers to your questions of hiring or whether to invest in a new tool are a lot easier to answer. And, if now is not the time based on your current budget, you can make a plan to ramp up business for the next quarter so that you can afford these things. On the flip side, business might be booming one quarter, so you can positively adjust your budget to reflect these changes and reinvest accordingly. It’s all about flexibility.
Creating a budget check-in schedule
To make a dynamic budget work, the one thing you have to commit to is a schedule of regular check-ins. Quarterly is usually easiest for most businesses, as it aligns with other business deadlines and checkpoints. That said; make sure you are reviewing your financials monthly. Whether you’re starting up, working in a volatile industry or just like to take a nimble approach to managing your business, dynamic budgeting will give you the freedom to use a budget without committing to a full year of financial limitations that may not be reflective of your current business.
Whether you believe in budgets or not, dynamic budgeting is a powerful tool. If you’re ready to learn more, contact me.
By Blair Koch
