Creating realistic budgets can be daunting. It is not just a matter of determining how to spend “X” dollars, there are political issues and important business decisions wrapped up in the process, as well as people’s likes. It is nearly impossible to make a budget without first establishing your goals. If you don’t know where you are going, you really can’t make a decision about even the simplest things, such as how many staff members you need. I discussed this a few weeks ago. It is also nearly impossible to make a good budget if you do not understand the day-to-day needs of each department. For this reason, the Board, President, CEO or manager should be giving only guidance in the form of goals, as well as total budget numbers for each department. The leader should then allow each department head to distribute the total as a specific budget.
So, assuming that you know where you are going business-wise, and how you want to get there, where do you cut if you don’t have enough money coming in?
In twenty-two years of running our own business, we had some financial ups and financial downs. During the financial down times, I always took out the business’ Income Statement and looked for the largest past expenditures. I found that the easiest place to cut costs were in areas where technological advances are rapid. These include telephone expenses, Internet service providers and business equipment expenses.
A good rule of thumb is that if you are using the same telephone plan, and the same cell phone plan that you were using 3 years ago, you should look for a new plan or a new vendor. Three years ago, my cell phone cost $100 per month; now I have more features and capabilities and I pay $35 per month. The phone company did not call me to tell me I should change program; they would still be happy to collect $100 per month from me. I had to search for the better program. Cutting 65% from a large regular bill can make a huge impact on a business’ budget.
Likewise, office equipment costs have been decreasing rapidly. Fifteen years ago, I did a calculation and determined that the reliability of my copier was so low, while the cost to purchase it was so high, that it was to my benefit to rent a copier and allow the rental company to repair it at no additional cost over the monthly rent. Now, however, a copier is not just a copier. It is a printer and scanner too, and the cost to acquire a new one is about the same as two month’s rent for the old system. So you can end the contract with the rental company and purchase a new printer/copier/scanner every six months and still be ahead of the game. Once again, this can make a huge impact on the bottom line.
Make or Buy?
A look at contracting vs. hiring employees is always worthwhile. If you need a service for a few hours a week or month it is, of course, less expensive to use a contractor. But, if you are using a contractor to the point that they are working 40 hours a week, or billing more than the cost of a full-time employee, it might be to your advantage to hire someone to fill this position. Not only will it save money, it will provide more consistent results. An organization, like a City that has many major construction projects, could benefit from hiring a project manager rather than contracting for one with each project.
Sometimes it is hard to track money as it is spent by many employees at once. A good tactic is to publish all expenditures. We did this once by simply writing expenditures on a marker board. We were able to find a lot of office supplies being purchased that we didn’t need. I am still working through some envelopes purchased fifteen years ago by an over-zealous employee. The very fact that all purchases are going to be seen by everyone will cause some people to not make some purchases, thus saving money.
A look at seemingly small budget areas can sometimes produce dramatic savings. Allowing department heads to make the budget cuts after giving them clear goals and total budget numbers will ensure that vital services aren’t accidentally terminated. Also, allowing staff to take ownership of decisions makes for better decisions and happier employees.