I have 2 little boys. My older son (he is 4) has a very, very, very sweet tooth. He especially loves frozen sweet things like ice-cream, lollies, frozen fruits etc.
I usually have a secret stash of these sweet treats in my freezer to incentivise the boys to do things that they don’t like doing. For example, getting back in the house after a walk. They love being outside and it’s usually chaotic when it’s time to return home. However, I have come to realise that if I promise them an ice-cream treat, they don’t protest at all which makes me very happy. So for the sake of peace and my sanity, this has become a thing we do after going for walks.
The other day however, my oldest son managed to open the freezer and was greeted by this secret stash of lollies. He was astounded and super excited and would not stop asking for one. Even after I had given in, he still wanted another and I know for sure that if he could, that’s all he would have eat for breakfast, lunch, dinner, and everything in between.
This is a classic example of Parkinson’s law in economics (yup, there is such a law and it is not related to Parkinson’s disease…).
Parkinson’s law states that ‘the demand upon a resource tends to expand to match the supply of that resource’. Basically, as long as you know that a resource is there, you will keep consuming it over and over and over again, until it is finished, even if that was not your intention. In this case, because my son knew of the stash of lollies, that’s all he wanted. Had he not seen that stash, he would not even ask for them.
Parkinson’s law applies to all humans in general – we tend to increase our consumption as long as the resources are available. Think about that huge packet of crisps that you opened and now can’t stop eating and yet your plan was to eat it over a few days. Or those reports that you have to write and yet somehow, you always manage to finish them in the nick of time (if you really wanted to, you could have finished them earlier).
Parkinson’s law also applies to our behaviour when running a business. You will continue spending your business resources as long as they are available to you. That’s why we set business budgets – to put a constrain on business resources, and therefore control spending.
Every business needs a budget. If you’re a small business and don’t have a budget, yet you constantly feel broke and there is never enough money left over for profits or to pay yourself, you need a budget. A proper-written-down-carefully-thought-out budget.
Why? Because:
• Budgets tell your money where to go. This helps you avoid wasteful spending.
• Budgets tell you what your business can and can’t afford. This ensures you don’t overcommit yourself.
• Budgets force you to became creative on how to make your money go a long way, and as a result, you become more efficient.
• Budgets help you maintain your desired profit margins. Yes, you can influence your profit margins.
• Budgets ensure that you pay yourself as a business owner. This stops you from freely drawing cash from your business. Set aside how much to pay yourself monthly (it can be a set amount or a percentage of your sales) and stick to it. Separate your money from the business money by having separate bank accounts.
Budgets will help you develop the discipline you need to grow your business and become more successful. Try it and you will see!!
P.S.
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