Don’t worry about $83!

Many companies budget for every expense in every month and that is time consuming, costly and distracts managers from what is important.

Usually, only a handful of expense items really matter in each manager’s area of responsibility, often making up more than 90-95% of their total costs, but there is a whole raft of other expenses which don’t add up to much but which are conscientiously budgeted for every month, taking up a disproportionate amount of time.

If you see $83 budgeted for an expense item every month, chances are someone felt obliged to bung in $1,000 for the year which divided by 12 is $83 per month. There’s no logic to it; it’s just completing the budget absolutely 100%. It’s a ‘tick the box’ exercise.

But that takes time and yet more time to explain the actual-budget variance each month – but who cares? It’s so small it hardly makes any difference and you as a businessperson, surely, have bigger fish to fry. So why budget for such small amounts?

I suggest that you concentrate on getting the 90-95% right in the budget and lump the rest into a ‘bucket’ (unless there are small things you really do need to monitor, like entertainment, perhaps). It saves a lot of time and doesn’t distract you from what really matters.

#budgeting #financialstatements

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