The purpose of this article is to draw attention to the basics of constructing and using a financial budget.
A budget is a tool that is intended to provide management with a control mechanism for monitoring the organization’s performance. The organization’s performance is evaluated on the basis of financial inflows (income) and financial outflows (expenditures).
The term “project management” refers to a more specialized management and control process that is associated with particular activities that fit within the definition of a “project.”
Projects are unique (not routine) activities undertaken by an organization in order to achieve certain goals that inherently carry a higher degree of risk than normal. The theory is that the risk associated with the defined project can be better managed, mitigated and controlled by applying what’s referred to as the project management process or “framework.”
It is widely agreed that all small businesses, no matter which industry, go through similar definable stages of growth. Researchers have found that each growth stage has certain “personality traits,” so to speak, which distinguish one growth stage from another. There are discernable characteristics of each growth stage which, if recognized and understood, can be useful for understanding and identifying the organization’s progress. Having this insight in hand puts the organization in a better position to understand what needs to be done to successfully make its way through the growth path. In addition, knowing the financial demand on an organization when it reaches a particular stage will prepare the organization for what happens when the particular growth stage is reached.
The Harvard Business Review completed a helpful study for understanding the growth stages of small businesses. The study tracks five distinct stages of small business growth. While the report acknowledges the unique challenges that different small businesses encounter, it observes how the following five stages relate to the majority of SME’s (Small Medium Enterprise):
It is imperative for the organization to cultivate a customer base before doing anything else. Don’t make the mistake of investing in strategic assets such as elaborate computer systems and office furniture before even having a revenue stream. The bottom-line for the “existence” stage: the focus should be on letting the world know you exist–i.e. establishing customers–and then, once that is done, you can allow a solid customer base and revenue stream to justify additional investment in strategic assets.
Once you have a product that people will buy, survival should become the primary concern. This stage is characterized by being able to make enough money to cover your costs. It’s about differentiating yourself from your competitors in a way that satisfies your market and makes consistent finance growth possible.
Once a company is economically healthy and is generating better profits to ensure success, the company can stay at this stage indefinitely. This stage requires financial management, organization development, and delegation to a growing management team. Few founders have the temperament to successfully continue to lead an organization beyond this stage. At this stage, the business owner has to decide if he or she is going to disengage from the business or go for growth.
If the decision is to grow, then delegation and financing will become key problems. You’ll need competent management who can handle growth and the complex business and evolving business environment that goes with it. This is a pivotal time, and it requires a careful balance pursuing between rapid growth and long-term sustainability.
Controlling your substantial financial resources will be one your biggest challenges if you manage to create a mature company. But the biggest challenge of all will be cultural. Once you reach the maturity stage, another major problem is lack of innovation. In many cases, companies must diversify their services and secure new revenue streams to avoid stagnation and to keep up with market changes.
Although business experts disagree on the number of distinct growth stages in a business life cycle, they typically agree on what occurs during each critical stage. The five stages above touch on all of those common occurrences in a company’s growth.
In summary, when the business owner has knowledge of typical challenges faced in upcoming growth stages, it gives the owner the upper hand as he or she positions the business for growth and success.
At first glance it might seem more than just a little odd that a large number of debtors surveyed were reluctant to take advantage of alternative “non-government” financing options—i.e. refinancing their student loans for a more attractive interest rate. This begs the question: why won’t a larger number of student loan debtors take advantage of refinancing alternatives that would lower their effective interest rate?