Your business needs to find the right benchmarks to make your annual budget effective. Learn how.
Even in the best of circumstances, budgeting can be an extremely stressful and challenging process to manage. Thankfully, there are many tools and techniques to make sure that your budget is appropriately aligned with your business goals. Among the most important is identifying key benchmarks that can enable you to stick with identified business goals. Learning the right benchmarks can be a complicated process, but it is important. Let’s talk about how you can identify the right benchmarks for your organization.
1. Survey your staff
One of the first and most important lessons that you must learn in business is this: You don't have all the answers, and you don't have to have all the answers. You have a staff that can help steer your business toward financial success. Your staff is an asset, as they know things you don't, and you have to rely on their expertise.
The expertise of your staff should help guide your budgeting process. As such, consider the following steps:
benchmark tips
First, decide if you want to conduct a formal or informal survey. For example, do you simply want to have a casual conversation with staff and then record the results, or do you want to ask them to fill out a more formalized questionnaire?
Either way, determine what questions you want to ask. Ask staff in different departments to get a broad sense of what will work. Specifically, ask what they believe are the particularly key benchmarks for the upcoming annual budget.
Record those benchmarks and consider the final results. Just because staff suggests something doesn't mean you need to include it. However, this can be an excellent starting point for reviewing areas of your budget that you may not have previously considered.
When determining whether or not to include something, consider the following:
The impact of the benchmark in question.. The feasibility of collecting this benchmark.. If the collection of the benchmark has the potential to create a more or less accurate picture of your budget.
2. Examine your industry
There is almost no question that others have made budgets in your industry or specialty before. This means that there is likely already expertise or guidance you can tap into to make a better budget for your company. Furthermore, there may be industry experts or associations that can provide additional guidance and critical information.
Like the step above, this step requires you to understand that you don't need all the answers, but a trade association in your field may have them. As such, consider the following steps:
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Are there industry groups that you need to be a part of or are already a part of? If so, contact an expert on staff and ask how other businesses such as yours conduct the appropriate budgetary research.
Search the internet or internet forums to see how others manage their budgets. See if there are any suggestions there that can positively impact your budget.
Do you have local contacts that you have made at trade shows or other events? Consider asking how these groups approach their budgeting and determine key benchmarks.
3. Delve into granular-level detail
Every small business has basic KPIs that they rely on, such as net profit, gross profit margin, or return on sales. However, in some cases, your business can succeed or fail based on a specific piece of granular detail that is of critical performance to your business. This process can arguably be the most challenging and labor-intensive when identifying additional key benchmarks. However, it can also be the most impactful. Consider the following steps:
benchmark tips
Work with staff in your finance accounts receivable and accounts payable department, and examine specific budgetary sheets and individual transactions. See what trends emerge from this survey. For instance, are there products that are selling particularly well, or services that are clearly high-value that have room for growth?
Consider examining granular detail well beyond your finance department. For example, how does your sales team perform in lead-per-sale, cost-per-sale, or other vital benchmarks? How efficient is your marketing team?
Using this detail, ask your finance team to pull together new metrics you had not considered. What do these new and different vital benchmarks tell you, and how can you use this information?
Feeling more confident about your annual budget benchmarks?
If you follow the steps above and learn how to identify the right benchmarks, you can expect to develop a budget that will be more aligned with your business goals. The identification of these key benchmarks means that you will spend your limited resources in the best possible ways, turning the money you invest into more profit later down the line.
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