Budget and Forget It?
There are plenty of articles and resources on budgeting and overall planning available to business owners. The problem is that too much of the old “tried and true” advice puts the emphasis on annual planning.
Why is this a problem?
Quite simply, business owners typically put significant time and energy into creating a comprehensive plan and budget at year end or first quarter and then, almost inevitably, the budget is either irrelevant by April or it’s been placed in a drawer not to see the light of day until next end-of-year planning session.
Since next month is November – time for planning and projections in preparation for 2012 – we want to help you ensure your planning process and budget become the dynamic tools they needs to be to support your organization’s success year-round, rather than static pieces of paper that don’t do much more than gather dust.
In the article, “Is It Time to Abandon Budgeting?” Miles Ewing, a principle of Deloitte Consulting LLP, outlines just a few of the reasons many businesses avoid budgeting like the plague and how to adjust the budgeting process to make it more relevant.
We think you’ll find the article timely and eye-opening, and we’ve also included additional recommendations below to help you make your end-of-year planning process, including budgeting, more dynamic and useful to your organization:
Change is Not an Excuse to Do Nothing. It’s Why You Need to Do More. The business environment is constantly changing. But just because change is the only constant in business (especially today), does not mean planning is a waste of time. Frankly, that perspective is a cop out. Planning is the very action that gives business owners the foundation and information their organizations desperately need to adjust to constant change, overcome challenges and leverage opportunities. The planning, projections and budgeting process literally provides the decision-making data CEOs and owners must have to maneuver an uncertain, ever-changing future.
Plans Were Made to Be Broken. This refers to the point we made in the intro to this article. Plans, projections and budgets may be set annually, but they need to be revisited throughout the year. These documents are created specifically to give business owners a way to evaluate how their organization is currently doing compared to plans. As business owners, we all need to revisit our planning documents quarterly at the least, and monthly ideally, to check that our assumptions are still valid. Chances are, they are not – and this is even more true in times of instability and change. It is far easier, less stressful and saner to uncover a discrepancy in June and adjust immediately than it is to wait until the end of the year to find out how off track your organization is and how many potentially profitable re-directs you missed out on. Additionally, business owners need a deep understanding of the impact of cash on projections that are based assumptions about working capital, capital investments and loan repayments. If the validity of these assumptions is not verified regularly, the bottom line can be greatly and unfavorably influenced.
Communication Equals Cash. For planning to be effective, and organizations to be profitable, business owners cannot create budgets and projections in a vacuum. They need input – and lots of it. Effective organizations create thoughtful projections based on input from key functions and interaction among the entire management team. When business owners open the channels of communication and seek out the input of the their leadership team, they gain more than additional information for planning – they tap into a deep knowledge base that brings more, and often better, insights and ideas to the table.
Ownership Equals Results. Business owners and leaders need to make their teams accountable for results and impart a sense of ownership within key departments. Sales and marketing must “own” the revenue forecast and be held accountable for developing strategies that will attain those numbers. The same is true for the production and operations side of the business – those in charge of these functions must “own” the cost of revenue and services.
Clearly, there is much to be done at this time year (and all year round) related to planning. Despite the downside or abhorrence of budgeting or any other financial planning activity, business owners are wise to create an environment of constant evaluation and adjustment.
Putting a savvy and strategic financial team or outside CFO Advisor in charge of the planning process is, in reality, the first and most critical step toward a successful year.