Jacob a 14 year old boy is a straight A student. His method each school year is to study just enough to get an A. He never really stopped to think how his performance compared with other students in other schools or never really had a plan for college. His mindset was as long as I keep getting A’s I am fine. When Jacob applied for college, he did not get into the first school of his choice because he applied to a very competitive schools where other students had done more than simply get A’s.

A lot of business owners are like Jacob. They think, “As long as I sell as much as I can, and keep my employees paid, I’m doing OK”. The danger of this thinking is, without planning you will find yourself left behind some day. Sales number could start dropping due to market changes you failed to keep track of because you were too busy doing “ok”. Budget and planning forces you to think and examine the market you operate in. It also forces you to look for new opportunities that could take you to a whole new dimension. A good budget also helps with cash flow management. It balances receivables with cash flow.

A budget can have a significant impact on human behavior. For instance it can inspire top management to achieve a higher level of performance. What gets tracked, gets improved. Doing as much as you can is not the same as systematically building up. The budget exists within the framework of a sales forecast that shows potential sales for the industry and the company’s expected share of such sales. By constantly comparing to the industry, you can see opportunities much clearer than trying to “do as much as you can”.