So most companies have a big corporate office and a bunch of regional offices that they allocate money to, I get that. Let’s say a given office gets a $500,000/yr operating budget (just throwing out a random number). How do they spend exactly $500,000? Because they obviously don’t want to go over budget but they don’t want to have a surplus and lose $ next year. So is there wiggle room? Would they spend $499,995 or something?
In: 485
A few very basic answers.
First, you’re going to break it down in to smaller time spans than a year in order to monitor it (usually by month or quarter). So in your situation where you have $500,000 you’d know you’re on pace to probably go over budget if after the first month you had already spent $75,000. On the flip side, you know that you should probably increase your spending if after the first month you’ve only spent $10,000.
Second, the company is going to have a rough breakdown heading in to the year on what they have spent in the past and what they anticipate to spend that year. So if last year you know you spent $485,000 and your business strategy is going to be roughly the same this year…you know a rough spending outline already.
Finally, and this is the reality of it, a lot of times it involves some scrambling over the last 2-3 months of the year. Already at $490,000 and it’s only November 26th? You probably ask your controlling office to go over your budget, and if they say no maybe you put a travel freeze in place for your office, push off buying supplies until Jan 1, and put a hold on the marketing campaign. On the flip side if it’s December 15th and you still have $100,000 left, you ask to roll that in to next year’s budget or find creative ways to spend that money. Bonuses, pre-spending on supplies or marketing spends that you will be using next year, Holiday gifts to key clients and suppliers, a new advertising campaign that you normally wouldn’t do but you need to spend the money…all sorts of things.
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