It’s funny how the words come together. Few people do projections, but lots of people do budgeting. They are not that much different. Lots of people hate to forecast. Lots of people hate budgets.

Even the word “budget” conjures up images of disapproving accountants and denied requests: “It’s not in the budget” is one of the world’s more familiar negatives. No, by any other name, would smell as sour.

But, despite their bad reputation, budgets are always useful tools and are almost essential to the proper running of a business. Budgets are used for planning and for tracking performance against plans. Your plan-as-you-go business plan should always include your spending budget, and that, by the way, when you rename it, is one of your building blocks for your projected income.

Some people think of budgets as normal, not scary. Some people think of forecasts as scary. They are basically the same thing. Take it however it seems easier for you. It shouldn’t be that hard to do.

The best and easiest way to create a useful expense budget is to take last year’s expenses and run them forward.

Start with an empty spreadsheet, the columns set up to show the months you’re running for your plan, presumably 12 months. Then use the row labels on the leftmost column to assign categories. Start with something simple, like rent. Estimate your rent and get it into a standard format. Don’t say you don’t know, or you have no idea. Take it a little bit at a time, and you’ll have something you can work with.

Here’s a simple step-by-step way to increase the importance of budgeting and implementation within your business.

1. Budget preliminary meeting: Start your budgeting process with a preliminary meeting that brings your main managers together. Discuss strategy and priorities, realistic amounts, and the planning process. Distribute a simple template and ask each manager to prepare a proposed budget for his or her area. Ask the managers to create a proposal that includes monthly numbers, and descriptions of the programs and activities involved.
2. Budget development: Allow a period for managers to develop their budgets, working with the standard template. Enforce deadlines for preliminary proposal and revisions. Consolidate the proposed budgets into a single budget table that lists all of the proposed programs and activities. In most cases the total of all proposals will be tow or three times the real amount your company can spend. Share that consolidated table with all managers. Share with them the difference between proposed budgets and actual spending limits, and ask them to think about it.
3. Budget discussion: Bring your managers back together to discuss the budget table. Ideally, you set up a conference room with a projector and the consolidated proposed budget. Then you go through the budget, item by item, and pare it down to a realistic amount. Your managers will be together in a group, so they will have to defend different proposals, and as they do they will build up their personal commitments and their ownership of budget items and programs. They will explain why one program is more valuable than another, they will argue about relative value, and they will increase the level of peer-group commitment.

When this process works well, you have a more accurate, more realistic, and more useful budget. You also have a high level of commitment from your managers, who are now motivated to implement the budget as well as possible.

Ideally, every line in a budget is assigned to somebody who is responsible for managing that budget. In most cases you’ll have groups of budget lines assigned to specific people and a budgeting process that emphasizes commitment and responsibility. You’ll also need to make sure that everybody involved knows that results will be followed up. The ideal plan relates the budgets to the milestones table, shown below. The milestones table takes all the important activities included in a business plan and assigns them to specific managers, with specific dates and budgets. It also tracks completion of the milestones and actual results compared with planned results.

The Milestones Table

The milestones are the heart and core of the business plan. Using the milestones table will assign responsibility and authority to the expense budget plans.

While budget numbers are simple, budget management is not. To make a budget work, you need to add real management:

1. Understand that it’s about people. Successful budgeting depends on people management more than anything else. Every budgeted item must be owned by somebody, meaning that the owner has responsibility for spending, authority to spend, and the belief that the spending limit is realistic. People who don’t believe in a budget won’t try to implement it. People who don’t believe that it matters won’t worry about a budget either.
2. Budget ownership is critical. To own a budget item is to have the authority to spend, and the responsibility for that spending.
3. Budgets need to be realistic. Nobody really owns a budget item until she believe the budget amount is realistic. You can’t really commit to a budget you don’t believe in.
4. It’s also about following up. Unless the people involved know that somebody will be tracking and following up, they won’t honor a budget. Publishing budget plan vs. actual results will make a world of difference. Rewards for budget success and penalties for budget failures can be as simple as meetings where peer group managers share results.