The essence of budget control is to impose limitations on a business entity to ensure a company remains viable in its market space. Budget controls are put in place so a company does not operate at a loss and so it can have the cash flow it needs to implement its growth initiatives to build more sales, more profits, more market share, and more customers.
However, a business can overcome some of the limitations of budget control. It can do so buy thinking creatively and innovatively. Hence, it strives to operate within the limitations of budget control, while at the same time streamlining its operations so that operating costs are reduced, gross profit is enhanced, and ultimately, some or all of the budget controls can be lifted to permit the entity to once again aggressively pursue sales without strict monetary constraints on them.
A business can overcome some of the limitations of budget control in the following three ways:
1. Using existing resources more efficiently
Budget constraints means a business may not have the funds to buy more equipment, machinery, land, and plants (regarding manufacturing entities). In addition, businesses of any type, because of budget limitations, may not be able to hire any more employees or give extra hours to existing employees. Therefore, these businesses must do more with what they do have. This means extracting more value from their existing staff. It means extracting more value from their physical assets.
Maybe a company’s manufacturing facility, because of inefficiencies or poor planning, or poor management, is not operating at optimum capacity. Maybe there is a lot of waste in the system. The company must use its existing resources better to drive growth. The company can grow sales and profits with its existing resources without spending more. Efficiency of operations is the key here.
2. Seeking Professional Opinions from Industry Experts
Businesses, especially neophytes, may put in place budget controls, but not the right ones. They may need advice from seasoned industry experts who can analyze their business and help them put the right budget controls in place. Sure, they will have to pay the consultant(s), but their Return on Investment (ROI) from this may well be worth it in the long run.
For example, a business may limit expenditures on employee hours. Depending on the industry, this may be a wrong strategy. In retail, it may mean less employee hours devoted to customer service, and display and merchandising. Therefore, these budget limitations may actually hurt the company.
An expert consultant can help a new business especially, by possibly saying that employee hours should not be cut. A consultant may suggest that the company cut some of its inventory and advertising budget, while maintaining its wages and salaries budget to maintain a high level of customer service. Cutting the inventory budget so there is not a lot of ‘sleeping stock’ in the back room collecting dust may be the better budget constraint to put in place.
3. Analyzing its completion to better align themselves with very successful companies
Companies can overcome the limitations of budget control through performing quality due diligence on their operations and then doing the same on the operations of their competitors. In this way, a company measures their performance, strategies, and programs against those in their niche. They may notice inefficiencies in certain of their departments as compared to their competitors.
They can subsequently tweak their operations for greater effectiveness - and this they can often do within their existing budget. Consequently, they improve their operations and eventually (because of increased sales and profits) may be able to increase their operating budgets and aggressively pursue programs designed for growth.