Randi Turner is bullish on budgets. When the 35-year-old president of Safeguard Security, a private security company, hit his five year business projections two years early thanks to his knack of compiling detailed budgets, his advisory board quickly nicknamed him "Budget Savant."

    "Building a business is like erecting a new home from the ground up," says Turner. "A sound business idea allows you to pour the foundation; your business plan gets the walls, roof and the rest of the structure up. But it’s your short and long-term budgets which create the windows that allow you to look outside and into the future."

    That's the kind of talk Hal Lefkowitz, director of the Small Business Development Center, has been giving small business clients for decades. Yet few of those seeking help seem to know even the basics about planning.

    "I'd be amazed if even 20 percent of our clients had an operational budget, let alone a business plan," says Lefkowitz. "There are two essential components that drive a business: making a profit and learning to control it. Without a cash flow analysis, for example, a business can’t determine its working capital needs and is at a loss to understand and time its acquisitions. Without monetary controls to analyze monthly financial statements, the account receivables could be 90 days old before anyone realizes it. Beyond 90 days those receivables may not be realizable as an asset and the business might actually be in serious jeopardy of failing."

    That's the type of scenario Craig Castanos, CPA, sees all too often. Selected as the U.S. SBA's Accountancy Advocate of 1993 for the western region, Castanos says that at least 70 percent of the clients who seek out his company either haven't prepared budgets before or fail to monitor projections against actual results. That, he says, plays a substantial role in the failure of small businesses, 70 percent of which don’t make it through the first five years.

    Why then such reluctance to follow financial strategies that greatly improve the odds of achieving success? How about math anxiety?

    "Frankly, I think few entrepreneurs have a background in financial management and are understandably intimidated about budgeting and the accounting concepts involved in running a business," says Castanos. "With the time pressure of working as much as 70 hours a week to jump start their business, it’s easy to put planning on the back burner."

    A business that fails to budget won’t be ready to weather surprises such as the loss of a major customer or a key employee.

    "Unless you have a budget, how much these losses impact profit will be just a guess," says Castanos. "A good working budget will help you put together a game plan to make up the difference. "

Chantal Clifford, president of Mail Dispatch.

    That's where a budgeted income statement comes in. Comparing actual income and expenses with budgeted estimates on a monthly basis helps pinpoint variances and their causes. Was profit down because sales didn’t meet expectations or because the actual cost of making the sale was too high?

    "Having a budget and monitoring it religiously will make the difference between just treading water as a company or reaching, even surpassing potential," Castanos predicts.

    Chantal Clifford, president of Mail Dispatch in Kearny Mesa, should know. When she began her mail courier business seven years ago, she kept a free-floating budget in her mind. Then she hired Castanos as her accountant.

    "I always knew I'd have to get around to committing my budget to paper, and Craig really helped me crystallize the process," she says.

    Thanks to new budgeting software on the market, the process turned out to be less time consuming and intimidating than expected.

    "It was tough to discipline myself to take time away from the day-to-day operations," Clifford admits. "When I finally made a commitment to budget, I used a spreadsheet but that took ages to complete. Once I began using the computer software, it was a snap to plug in the numbers and now it only takes half a day to get it right."

    Clifford's discipline paid off. Since she began a formal budgeting process three years ago, she's been able to double the size of her workforce. She makes sure to set aside time each month to compare actual expenditures against projections.

    "Having a budget is very motivating," the 27-year old entrepreneur says. "It allows me to lay out in advance what the bottom line will be if I meet my sales goals and stay in line with my budget. If we fail to reach those goals one month, we know what the shortfall is and just work harder the following month. Now I have a good indicator as to when I can afford to hire more employees and purchase equipment."

    Clifford also appreciates the ability to initiate tax planning early in the fiscal year. "Unlike lots of small businesses which wait to the last minute to prepare their taxes, we consult with Craig quarterly. We’ve been able to implement a pension plan and make the right decision concerning whether to buy or lease new equipment. Before I began to budget, I thought it would be better to buy telephones and two-way radio equipment outright; now I understand that we can upgrade less expensively, conserve cash and reduce taxes by leasing."

    A well planned budget also eliminates surprise expenditures.

    "Before I budgeted, I was always unprepared for a few expenses like insurance and other biannual fees which impact the bottom line in an unpleasant way," Clifford says.

    Budgeting also has upped her status with her banker. "Banks are much more willing to increase lines of credit to a business that plans ahead and analyzes financial data on a monthly basis," she notes.

    Steven Beaver, president of Downtown-based Legal Reprographics, agrees. With 100-plus employees, he guides his 6-year-old business by using his budget as a tool to forecast growth conservatively.

    "Most entrepreneurs go in with the goal of realizing a dream rather than turning a profit," he explains. "If the cost of making their product is $1 and they sell it for $1.20, they assume they're turning a profit when they're actually getting more and more in the red. Most people I speak with about failed businesses put the blame on being undercapitalized. That excuse tells me the problem really was failure to budget and forecast accurately their cash requirements. A budget is your most reliable roadmap to success."

    As for Randi Turner, he expects to define a new vision for his company by engineering a paradigm shift in the image of security guards, thanks to the budgetary process.

    "To increase our net profit, we realized we'd have to increase the quality of our service, and upgrade the skills of security guards and the way in which they're regarded," he explains. "We expect this vision of our workforce in the millennium to absolutely transform the industry."

    Wow! Talk about a tribute to budgeting.

- Sheila Sobell