How to Tackle Budgeting in a Small Agency
I recently stepped into the role of operations manager at a small agency, and I’m currently focused on enhancing our business processes.
One thing that stands out to me is how the owner/director manages daily finances. Decisions are often influenced by emotions rather than established procedures. While this isn’t a critical issue, it does introduce complexities when it comes to spending. The owner has been running the business solo for nearly 30 years and has a deep understanding of every dollar spent. We’re aiming to evolve into a more structured operation to gradually reduce their day-to-day involvement, ultimately paving the way for a long-term retirement.
The owner is incredibly honest and receptive to suggestions, which is great. However, I would like to propose implementing structured budgets that could be reviewed annually or quarterly for essential areas like IT, marketing, and employee entertainment, along with other typical business budgets. For instance, when it’s time to replace a laptop, if sales are thriving that week, we might invest in a higher-quality laptop. Conversely, if sales dip, the owner might push for a more budget-friendly option.
Another example is our marketing initiatives involving company merchandise. During client visits as part of business development, we were instructed to create a range of merchandise. However, due to not hitting our targets that month, we ended up ordering less than half of what was originally planned. While this doesn’t seem like a major issue, these types of decisions can have ripple effects.
Ultimately, the business is performing well and has consistent, predictable profits each year, but the owner is predominantly focused on immediate results.
I’ve started discussing the idea of creating budget plans, and while I believe I can persuade them eventually, there’s some hesitation. They raise valid concerns, such as, “What if one year we need three new laptops but another year we don’t need any? How does that affect the budget?”
Does anyone have advice on effective budgeting strategies for a small business like ours?
I’m confident I can convince the owner, but I’m looking for the best approach to take.
RCadmin
It sounds like you’re in a pivotal role and have a fantastic opportunity to help guide the agency toward a more structured approach to budgeting. Here are some suggestions that could help you introduce budgeting effectively:
Educate and Collaborate: Start by sharing the benefits of budgeting, using examples from reputable small agencies that have thrived due to structured financial planning. Engage the owner in the process by discussing how a budget can serve not just as a financial tool, but as a strategic one that can free up time for them to focus on larger priorities.
Implement a Flexible Budgeting Model: Address the owner’s concerns about fluctuating needs. Propose a flexible budgeting model that allows for adjustments throughout the year based on actual expenses and changes in business dynamics. This could mean setting up a baseline budget with a contingency amount or “buffer” that can be adjusted as necessary.
Zero-Based Budgeting for Purchases: Consider implementing a zero-based budgeting approach, where every expense must be justified for each new period. This can help prioritize spending and ensure that every expense is necessary, which might be appealing to the owner’s cautious approach.
Use Historical Data: Gather data from past years to project future needs more accurately. Show how certain patterns emerge over time, which can help mitigate concerns about budget predictability. For instance, if it’s clear that certain months require more IT resources, you can build the budget accordingly.
Prepare for Reviews: Propose a semi-annual or quarterly review process for budgets. This allows for real-time adjustments and fosters an environment where the owner can see that budgeting is not set in stone. It also allows for discussions about changes in priorities or unexpected needs.
Highlight Successful Examples: If available, present case studies or examples from similar small businesses that have transitioned successfully from reactive spending to proactive budgeting. Real-world impacts on profitability, efficiency, and decision-making can illustrate the tangible benefits.
Visualize Budgets: Use visual aids—charts, graphs, and dashboards—to present budgeting data in a clear and understandable format. Visualization can help the owner see the bigger picture, how funds are allocated, and the long-term benefits of sticking to a budget.
Pilot Program: Suggest starting with a pilot budget for one department (like marketing or IT) to ease the owner into the process. A successful trial run could serve as a proof of concept for broader budgeting practices across the agency.
Encourage Open Communication: Foster a culture of open dialogue about financial decisions. Encourage team meetings to discuss budgetary needs and expenditures. This will not only help the owner feel more comfortable with the system but also provide valuable insights from others on the team.
Be Patient and Supportive: Change takes time, especially in well-established businesses. Be patient and continue to provide support and encouragement as the owner adapts to a more structured approach to budgeting.
By approaching budgeting as both a strategic operational change and a collaborative project, you can help ensure buy-in from the owner while also setting the agency up for greater financial success. Good luck!