The Dreaded Budget: Arbitrary Constraint or Useful Tool?

Try to think of something more corporate than a budget. Does the thought of the budgetary process give you anxiety? If yes, you’re probably an owner-entrepreneur.

Budgets are definitive statements about the future. They put your business in a box. You do not like being put into a box. You are an outside of the box kind of person.

In spite of this, I assert that you should embrace the budgetary process. Yes, it can be tedious and time-consuming. But the reward is great for those who treat the budget as more than a mandatory annual exercise for their lender.

The Bad Side of Budgets

One common complaint about budgets is that they encourage the “use it or lose it” mentality, which leads to unnecessary expenditures to preserve one’s budget size for next year. While I have seen this behavior in large corporations, it is far less common in closely held businesses with engaged ownership.

Another complaint I’ve heard is that budgets form an artificial constraint. Once again, I find this to be more myth than reality in closely held businesses. Certainly the budget can constrain spending and force the team to do more with less. But it also can enable collaborative conversation when unforeseen needs arise, leading to better outcomes.

The Good Side of Budgets

I cannot recall the source, but it was once said, “The problem with forecasts is that they’re about the future.” This is true. You will either beat or miss budget, never nail it. That said, the best thing about a budget is that it provides a measuring stick, which can serve an invaluable role in helping you improve your business.

You might focus on up-time, production rates, truckloads, clicks, foot traffic, conversions, scrap rates, or whatever statistics matter for your industry. Yet when it’s all said and done, profit or loss is the measurement that determines business success or failure. So why not monitor progress toward that goal?

By setting an annual budget and measuring actual progress to it monthly, you will discover a lot about where you need to be focusing your efforts. Additionally, this process will make your company more bankable and invest-able, as you are able to discuss and address variances (positive and negative) to your budget in record time.

Need help with your budgeting process? Reach out to Doescher Group to learn more.

How to Avoid Being Nabbed by a Shark

We exist in a competitive market-based economic system.

As an owner-entrepreneur, you are abundantly aware of this in your day-to-day business. You’ve got customers demanding price concessions and increasing their delivery requirements, employees asking for raises, suppliers tightening terms and causing you headaches, and competitors aggressively trying to cut into your core lines of business.

The same is true when it comes to the sale or transition of your business. It’s a competitive process; ruthlessly competitive.

That said, in your day-to-day business, you know the market and you’ve played the game for decades. But in the market for the buying and selling of businesses, it’s an unfair fight. It’s like fighting blindfolded against an experienced boxer.

If you own a business, this is a reality that you will one day face. You can ignore it. Or you can do something about it. For the same reason you seek legal advise from an attorney or investment advice from a financial planner, you can seek out advice on how to avoid getting nabbed by a shark.

Many times the planning process may lead you to sell your business to a shark. But with the right planning and implementation, you can make the shark work for his meal. You can end up with much more at the end of the day financially and non-financially if you do this right. Reach out to Doescher Group to learn more.

The Two Languages of Business

As an owner-entrepreneur you know how to execute. You can take an idea and turn it into a business that provides benefit to your customers, employs people, and provides you a profit at the end of the day. You are a creator.

You can see the future. You love to look at an open field and explain the beautiful state-of-the-art facility that will be on that same ground in a few short months. You see some empty space in your factory floor and envision a new automated line that will cut your operating costs in half. You even see a newly leased space and envision it packed with customers for your new retail concept.

You speak the language of the owner-entrepreneur.

To bring your future vision into reality, you cannot always do it on your own. You often need a financial partner. For simplicity, we will call this partner the bank. It could be bank or some other financial institution.

You set up a meeting and you share your vision with the bank. They sit patiently and listen. They will even ask a few follow up questions. Everything seems to be going well.

Then the questions start. Strange words are said: Normalized EBITDA, Fixed Charges, Unfinanced CapEx, Financial Leverage, Covenants, Guarantees, and on and on.

Perhaps some of this conversation brings you back to your last meeting with a banker or perhaps a meeting with your CPA. But it’s not making any sense.

The bank speaks the language of finance and to you it might as well be Martian.

You have a decision to make … You can get frustrated or you can do something about it.

If you choose to do something about it you need to find a translator; someone who is bilingual. Doescher Group is here is to help by serving as part-translator, part-problem solver. We can help get you from Point A to Point B. Reach out to Doescher Group to learn more.