Budgetary Objectives

by Jennifer Williams

Entrepreneur's Small Business Encyclopedia defines the budgeting process as "Establishing a planned level of expenditures, usually at a fairly detailed level" so that you control your business's cash flow, not the other way around. But it's not enough to hold the general goal of controlling cash flow. How you accomplish this cash flow control is provided by individual budgetary objectives. Budgetary objectives constitute the "detailed level" of budget planning referenced in Entrepreneur's definition. Budgetary objectives are individual goals the final budget must meet to completely address every element of cash flow control.

Define a Successful Financial Outcome

Decide on a time frame for the budget, such as one year, and set profit and expense goals for that time period. Break the time frame down into smaller increments, such as fiscal quarters, and break the profit and expense goals down into equal increments. Knowing where you want to end up financially before you start the budget planning process is like knowing your final travel destination. Only with the destination in mind can you map the route to get there.

Set Spending Policies

Establish policies by which day-to-day spending decision are made to give everyone in the organization guidance in how to make spending decisions and to keep such decisions uniform throughout the organization over the entire budgetary time frame. Break the organization down into categories, either by department or by function, then articulate spending policies for each category. Policies include quarterly expenditure caps on such areas as technology hardware, contract services, office supplies and even consumables like coffee. Also include policies to address the pacing of expenses, such as requiring a certain number of calls to technology support help lines before bringing a tech out to fix a piece of equipment and requiring such a house call before paying to replace the piece of equipment outright.

Plug in the Numbers

Use the categories you broke the organizational expenses into for formulation of spending policies, and plug in actual target numbers. If policy sets a cap on the amount that may be spent quarterly on technology support, now is the time to actually give that cap a number. These numbers can be actual amounts, or they can be percentages of total allowable quarterly expenditures. Require budget requests from all department heads so that the end numbers are not arbitrary assignments by upper management but reflect the organization's actual needs.

Examine Efficiency and Waste

Compare the organization's current financial operations to the final version of the new budgetary objectives. If a significant difference is discovered between how the organization's finances look now versus how they should look under the new budget, find out why. If a department is spending no money, its efficiency may be suffering from it. Analyze whether this department's contribution to the organization as a whole is suffering because of inefficient allocation of resources. If too much money is leaving the organization in certain operational categories, find out who is in charge of that area and ask for justification of his spending habits. Tweak the budget as necessary to tighten efficiency and eliminate waste throughout the organization.

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