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22 June  2008 ~

Corporate Budgeting It’s officially summer right now and with that change of season, comes another season that many of us dread… Budget Season! Did you know that only 1 in 3 companies enjoy an “accurate forecast” (accurate is defined as having actual results that are within 5% of projection)? Budgeting in general, is like having a GPS for your business.  If your GPS weren’t accurate, wouldn’t you fix it or would you rather continuously end up in the wrong place?  Forget about the dread and dismal results, these can be fixed and yield big improvements in your business.

The old saying is that the more things change, the more they stay the same.  In almost 20 years of working in finance, I can attest to that being clearly proven true by looking at the budget process.  Although the way business was conducted 20 years ago vs today, is radically different, the same basic challenges that came up 20 years ago in the budget process, still seem to come up again and again.  Does any of these sound familiar?

  • We really don’t have a formal budget.  Everyone knows (informally) how much money they want to make and that drives our sales.
  • We don’t have time to do a budget and anyway, it’s too far out to project since our business is rapidly changing 
  • Relatively little planning is done and it is based more off of timing issues rather than a metrics based approach.
  • We do prepare a budget and all of our planning is done via Excel spreadsheets
  • Our budgeting process is largely driven by sales goals developed at the top of the organization
  • Several metrics are used to develop the sales goals, but the targets for those metrics are developed independent of the functions responsible for driving/attaining those metrics 

A budget is probably the most important tool a business can have.  It provides a game plan for not only long-term business operations, but day to day operations as well. Properly used, a budget can create a “business roadmap” to validate the activities your business plans for the upcoming year and minimize the “overwhelm factor”.  It will help the appropriate business leaders select from alternatives to help make their business plan realistic and achievable.  In helping a business meet its goals, it is helping it to become more profitable, and give it the edge in getting through tough financial times.

 Some of the things a budget will begin to address include…
• What should sales targets be to achieve the desired profit?
• How much time should be focused on a particular service?
• What is the best use of business development in terms of revenue generation?
• What are the business expectations for new sales resources?
• Along with many other key elements

So what are the 11 things I need to know to increase the effectiveness of budgeting within my business. Here’s a relatively simple step-by-step approach:

  1. Start your budgeting process with a preliminary meeting that brings your key managers together.
  2. Discuss strategy and priorities, realistic amounts, and the overall planning process.
  3. Strategic objectives should be clearly defined and metrics developed to measure whether or not those objectives are being met.
  4. The metrics should then flow down through the organization.
  5. At each organizational level, the overall strategic objectives of the organization need to be properly supported
  6. Sophisticated budget and planning tools should be utilized to improve planning and forecasting.
  7. Provide any necessary training & guidance for your key managers to understand the budget process and how to use the tools and templates. 
  8. Allow a period for managers to develop their preliminary budgets. Enforce deadlines for preliminary budgets and revisions.
  9. Consolidate the proposed budgets into a single budget table that lists all of the proposed programs and activities. In general, expect this to require significant rework.
  10. Bring your managers back together to discuss this budget draft. Then 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.
  11. Reconsolidate the budgets.  If they fit within your parameters, you’re done!  If not repeat step #10.

This is a high level perspective, what other details would you add to this list?

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1 Comment »

  1. What a great resource!

    Comment by auto mechanic jobs January 11, 2011 @ 2:13 am

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