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Yes, I’m being sarcastic. Sorta. Budgeting can be fun when our coffers are full. It sucks when they’re not. Challenging.
There are just a few principles that I’ve been devoted to throughout my career. Things that seem to serve as kind of “north star” for the operational challenges I’ve faced. One of them is to put something on trial for its life.
Put it on trial for its life.
Budget items live and die based on merit. That’s what it always meant for me. There’s likely going to be a serious and deliberate debate. At least on a few line items. But after considerable wrangling, line items either live or die after the necessary adjustments.
Let’s consider some things we can do to make budgeting great. I won’t promise to make it fun, but who knows?
Fast Scan For The Obvious Bad
Sports commentators talk about a team that passes the “eye test.” That is, the team looks good. No matter their record, they just look like a good team. You can apply that same logic to the first quick passes through the line items of the budget.
Look for the things that jump out without scrutiny. Some items will leap out and get your immediate attention. You may find yourself muttering, “What in the world is this?”
My preference was to do this alone, without a CFO or accounting person. Not because I didn’t want their knowledge, but I wanted to run through the numbers myself without letting myself get sidetracked. You may be able to control yourself better than me, but I knew if I began to question a line item I’d be tempted to stomp down and dive down that rabbit hole. I want to get into a rhythm of going through the whole list so I can do it a few times quickly. It’s not like speed reading for me, but I don’t want to linger too long on any one line item.
I like to use hi-liters as I go. Green is GO. Red is NO. Yellow is I DON’T KNOW. But rather than mark things up too badly and clutter things I tend to go through my first pass focusing only on RED or NO ITEMS. No doesn’t mean they’re completely gone, but it means these jump out at me as needing more serious consideration and probably deserving of a cut. I don’t use any other colors on my first pass. That makes it easy for me to discern the most obvious line items where I can make some likely reductions. No, I’m not going to get it 100% right. You aren’t either, but that’s not the point. The point is to give yourself a place from which to begin so meaningful progress can be made.
Fast Scan For The Obvious Good
Now I’ll do the same thing for the items that seem congruent with the goals of the new year or whatever planning period I’m using. It’s time to bust out the GREEN hi-liter.
I’m scanning for line items where the line item seems fitting or maybe it could even use some beefing up. I may put a small + (plus) sign if I think it could use some bolstering. I’ll put a small – (minus) sign if I think it could even suffer a closer shave. I began to do this years ago as I learned how the numbers add up and it’s good (no, it’s great) to have a cushion.
Let me interject here something about fixed expenses and how we deal with these. Fixed may or not be really fixed. Many things – perhaps most things – are negotiable. Too often business owners don’t want to put in the work to see if they can lower their expenses and thereby free up some serious money in the budget.
I’ll work a budget over with a YELLOW hi-liter on such line items, but only if I’m really willing to put in the work, or feel the work would even be appropriate. For example, if I wrestled with a landlord over terms of a long-term lease last year, I’m not going to be a jerk and go to the well again. You can do as you please, but I want to be a good partner. And I want to be reasonable and fair.
So I’m scanning for the obvious good or things I mostly agree with. These are items I’m not going to spend much time challenging unless somebody on the team wants to. Keep in mind, your leadership team is going to fight for certain things. It’s why I do this exercise alone without their input. That debate will happen soon enough.
Fast Scan For The Obvious Question Marks
Now I’m going through the line items a third time in my fast scan process. Keep in mind, I’m obviously seeing the same line items each time, but I’m looking for different things each time. Here I am on my 3rd fast pass, now looking for the line items that raise an eyebrow of “I’m not sure about this one.”
Yes, sometimes in the second or third pass I find myself reaching for the opposite color marker because a line item that didn’t jump out before…now it does. So it’s possible during my run through RED I grab a GREEN hi-liter. Or vice-versa.
Throughout this process, I’m working to keep things as black and white as possible. If I have to stop and deliberate in my mind about it, then I don’t mark it RED or GREEN. I keep moving on because I know I’ll likely mark it with YELLOW when the time comes.
There are line items we just aren’t sure about. Maybe they’re fine. Maybe we have specific questions. Maybe we need more clarification or information. These are items we know we want to address with our CFO and leadership team.
One Final Pass-Through
I’ve gone through it three times so I figure now that I’ve got it with all 3 colors completed I may as well review it a final time. Again, it’s a rather quick pass and I’m looking for obvious omissions or edits I’d like to make. It also gives me a 4th time to go over it.
I’m confident at this point with the work I’ve done. It doesn’t mean I’m right, but it means I’m ready to go to the next stage of budgeting fun. 😉
Lord willing, we’ll pick up on the budgeting frivolity tomorrow.
Be well. Do good. Grow great!