Why Budgets and Financial Control Matter
Let’s face it, budgeting and financial controls are not a sexy part of running a business. This isn’t sales, marketing, or product development. The only time most people are deeply interested in the financial controls of a business are when those controls have failed horribly (think The Big Short, or Enron).
That said, you need to care about the budgeting processes and financial controls within your company. That’s true if you’re a founder or business owner, if you are an executive or team leader, and even if you just hold a corporate card. If money is the lifeblood of a business, then financial controls are and business’s veins, controlling where and how that lifeblood flows.
Still don’t buy it? Here is a list of 5 reasons why business owners and founders should care about budgets and financial controls:
1. Enhanced Financial Performance
Let’s start with the obvious: effective cost management and control contribute directly to increased profitability. Stronger and more predictable profits in turn allow businesses to reinvest their earnings to improve products, maintain satisfied customers and teams, and ultimately create a virtuous cycle of continuous growth.
I don’t have much else to say here and expect this isn’t a revelation to most readers
2. Corporate Stewardship and Protecting Your Team
Once, I was working with a Senior Vice President of Marketing. We were discussing the price of a software solution that he wanted to purchase. The software was well within his budget, but he was still clearly weighing it in his mind. I asked him why and his response stuck with me. He told me, “Look, if I lose discipline and get in the habit of overspending, eventually that gets me to a precarious place. Worst case, that leads to layoffs. I have seen it happen before and I won’t do that to my team.”
It’s important to note that this organization was in great shape and nowhere near layoffs. To me, that was precisely what made his statement so impactful. This was a mature manager and while he wasn’t afraid to take risks and make investments (he did eventually purchase the software), he also wasn’t cavalier with his spending. He understood that if he was lax, he would put his team in danger.
As a leader, founder, or owner, your stewardship of your company and its finances directly affects the financial security and of your team members. Adopting prudent spending practices and maintaining solid financial controls protects your colleagues, peers, and friends from unnecessary risks. At least for me, this is just as important as improving financial performance.
3. Increased Investor Appeal
I expect you have noticed by now, but the economy is much tighter than it was a few years ago. Interest rates are rising, and investor expectations are morphing. Investors aren't looking for growth and revenue at all costs. This is true both for Venture Capitalists, Private Equity firms, and investors of all types.
Investors want companies that can demonstrate clear control over finances and the ability to drive profitable growth. Having a solid grip on budgeting and finance is key to proving to investors that you fit this mold. This means more investment, increased enterprise values (in case you're looking to sell the business), and happier Board meetings.
4. Improved Customer & Partner Service
Effective budgeting and financial control can also have a significant impact on your ability to delight your customers and partners.
At the very least, cost savings across your business mean you can invest more in customer experience, product, and customer support — all of which help you consistently delight your customers. Additionally, clear procedures, processes, and flows of control lead to more efficient invoicing, transaction processing, and general operations which provide a smoother, more ordered experience for everyone who interacts with your company. If done well enough, and if it makes sense to your circumstances, you may even be able to reduce the cost of your product (the best kind of customer service!).
All of this helps improve sales, increase loyalty, and distinguish you from your competitors. People trust and like dealing with companies that are organized and disciplined.
5. Better, More Informed Decision Making
Finally, having a solid grasp of your company's finances and budgeting processes leads to better decision making. As a part of your process, you not only capture more data, but you also are forced to actively consider that data and what it means for your business on a regular basis.
This helps you make more informed decisions about where to invest, what to cut, and how to optimize your business. You'll be able to identify trends, make more accurate forecasts, and have a better understanding of your company's financial health. The world’s leading organizations obsess over data and leverage it in all their decisions -- budgeting and control mechanisms are one path to get your operating in this style of thought.
Final thoughts
In conclusion, budgeting and financial control are critical to the success of any business. They may not be the most glamorous aspects of running a company, but they are essential to maintaining financial stability, protecting your team, and driving growth. Effective budgeting and financial control can lead to increased profitability, enhanced investor appeal, improved customer and partner service, and better decision making. As a leader, founder, or owner, it's your responsibility to ensure that your company has a solid grip on its finances and budgeting processes.
