Businesses that plan well, grow most.
The Planning Cycle
It’s the time of year when a lot of businesses are beginning their budget cycle if their fiscal year is tied to the calendar year. In these early stages, companies that rely on a bottom up approach due to the specialized knowledge that exists on the front line are starting to get input from staff. All the while the senior leadership team is confirming its broad strategic direction. This kind of participative approach gets great outcomes when used well and facilitated skillfully.
Business Coaching and Setting a Budget Well
I am surprised at how many small businesses come to us for coaching and consulting and reveal to us (we usually know as soon as they complete the potential client questionnaire) that they do not prepare comprehensive budgets for one year out, let alone multiple years. Our view is that this is such a significant error. A business, no matter how large or small, old or new, simply must quantify its operations for a future period. It is impossible to make fully informed strategic or operational decisions without short and long-run budgets.
Some new entrepreneurs have not yet grasped the necessity of budget planning. Instead, they fly by the seat of their pants all year long. Their mentality is that it’s impossible to predict revenues because I don’t know where my business is going to come from next year. While parts of this may be true, you simply must plan, using a range of assumptions. You cannot control what you don’t understand and you cannot understand without data and comparing that data to predicted outcomes, trends, etc.
Running a business, even a small one, without a budget is like living in a house with no walls. There are many approaches to budgeting and there is an approach that can suit every type of business.
Growth and Planning
Budgets actually resolve a whole bunch of potential organizational problems. One upside of budgeting is that it helps carve out and define decision rights amongst your cost centre leaders. Budgets also provide a mechanism for measuring and evaluating performance. Budgets in an organization are also an important communication tool. They help provide good information up and down, as well as across, business units. Finally, budgets help organizations set goals. The process of creating a budget offers opportunities for internal negotiation and contracting that is critical for firm wide success.
- Assess your own use of budgeting in your company. Does your budget process allow for robust negotiation and internal contracting amongst your senior leaders?
- Do you leaders know how their budget actuals are being used in evaluating their performance? And, are you maximizing your opportunities to get the most out of your leaders by using their budget responsibilities?
- How do you link decisions rights and authority within the company to budgets?
- Start planning now for your next budget cycle, and if you need business coaching, facilitation and support to maximize your success, get that in place now!