Well run companies are focused on managing to an Annual Budget. This CEO Blogger has always been rather conservative when establishing our Annual Budget. I don't believe in spending money we don't have, borrowing extensively to fund the company, or pie in the sky budgeting. That means we budget based on business we know we have; not business, or assumptions, that might never materialize. We budget based on the desired Pre-Tax Profit we would like to earn. In some cases, that could mean Rightsizing the Company, which is just another term for potential lay-off's when necessary. Since generally in service companies, people represent 65 - 70% of overhead, it is the first place we must look when budgeting to determine our expense line.
Marketing expenses, not to be confused with Marketing staffing, are completely discretionary so they are another place to look to find savings if and when necessary. Finally, occupancy cost make up a good percentage of overhead. An aspect of Rightsizing also involves getting rid of excess space that is no longer needed and as quickly as possible to impact the budget year.
For our company, the budget process actually starts no later than September of each year for the next year as we anticipate what we will face in the new year. If we have to make cuts to expenses, they often start in the fall of the preceding year so that we get the full impact of those cuts in the new year. Sometimes the budgeting process is used to change the company's direction. Establishing a budget each year is critical to running any business. Cards talk and numbers don't lie. The Annual Budget usually tells the company story in real terms.
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