I remember those days preparing the annual budget at some of the large corporations that I used to work for. The majority of the budget process consisted of taking current year amounts and multiplying them by a factor for inflation. I would take current year numbers and assume 3 – 5 % inflation for the next year, and I was 90% done with the budget.
But is that really any way to prepare a budget? The budget should represent a genuine plan to increase the cost effectiveness and efficiency of the business. So before you start the budget process for 2012, here are some things to challenge.
Health Insurance – When was the last time you received new quotes for health insurance or considered changing your plan? Have you ever considered joining a Professional Employer Organization (PEO) to outsource your benefits management?
Business Insurance – When was the last time you reviewed the details of your business insurance coverages? Do you still own / lease everything that is listed in your insurance policies? I once worked for a company that was insuring twice as many vehicles than physically existed.
Technology – Are you paying to maintain computer equipment on site when it might be much cheaper to use cloud computing? When was the last time you received quotes on your land line, internet or cell phone carriers. One of my clients has reduced their communication costs over 80% in the last five years by upgrading to current technologies on two different occasions.
Sales Compensation Plans – When was the last time you challenged the assumptions in your Sales Comp Plans? Are the plans still meeting business objectives? Should there be additional incentives added for new products?
Equipment Leases – Are your leases cost effective? I knew someone who paid $6,000 in lease payments for a $300 fax machine.
Property Taxes – Have you challenged your assessments and gotten your property taxes lowered?
These questions could really be asked about every line of the income statement. So make it a project to challenge three or four of these line items each year in the budget process. Don’t just take the current year expenses times 1.05 and call the budget done!
If you need help with any challenges in the budgeting process, please call me. Thanks.