Revising Your Budget

When you start using your budget as a tool, you may find that your revenue and expense estimates are not falling in line with the actual performance of your company. When this occurs, you have two choices.

The first choice is to not revise the budget you created for the period and continually analyze the differences to determine how you can become more proficient at making estimates for the next budget. This is a good choice if the differences are not that large.

If the variances are large, I recommend that you revise your budget to be more in line with the actual performance of your company. It really doesn’t do you any good to anticipate a certain level of performance for your firm if there is no way your business is going to attain it. It is better to get your expectations (i.e., budget) in line with the actual performance your company will experience for the balance of the budget period. This can also be a good learning experience that will allow you to gain a better understanding of the revenues, expenses, and cash flows of your business.

Comments

[Rita Nzekwe]

So then how often in a year can you revise a budget?

[Scot Justice]

Rita,

Very good question.

One of the reasons I wrote this post is that bad budgets don't help anyone in a company improve performance. And normally, the bad budgets are ignored because they do not give employees reasonable benchmarks to compare actual performance to.

This why you should revise your budget periodically to get it in line with reality.

The frequency depends on how well your previous revisions are as well as how dynamic your company or industry is.

You don't want to drive yourself crazy, and use valuable company resources, continually revising your budget. So quarterly may be best, unless there is a huge bust in the budget that you know can be fixed with small revisions.