How to write a business budget that will drive your business plan, optimise expenditure and increase profit.

Development and compiling of a business budget are the most important business processes undertaken by managers – yet a significant number of businesses are not spending the time or effort required to produce budgets that support and drive results.  A well designed and constructed budget  will drive business results and will assign clear accountability across all levels of the business to put plans in place for the achievement of strategic business goals and the marketing activity to support those goals.

Budget processes must support the business plan, business goals and marketing strategy to achieve desired business goals, optimise cash flow, and manage expenditure against revenue.

Let’s take a look at some of the business planning processes we see from time to time
A typical approach to budgeting is to leave the detail until a few weeks out from the end of the current financial year, taking the year to date numbers, and increasing this by a more than hoped for percentage increase for growth, followed up with tasking the team to deliver the expected results – sometimes without the necessary marketing strategies in place to achieve stated growth expectation.  Another common approach is to bring the team into the budget process at a late stage and expect them to contribute high level numbers to the budget rather than providing the plans and actions pre budget to deliver results.

The outcome from both these approaches is the development of a type of quasi budget that your team can be expected to underachieve against.

Quasi budgets fail to deliver accountability within the business and can cause a level of disengagement within the team – they all but set your team up to fail, causing a stress factor to all of your HR processes, including performance reviews and remuneration evaluations.  Poorly structured budgets and targets do not support meaningful variance reporting and fail to leverage the full potential of your business. KPI’s fail to drive activity and accountability when the team feels they are set up to fail and feel they  have been excluded from the process.

An unmanaged revenue mix can easily swing business in favour of lower margin products or services – negatively impacting on overhead recovery models and exposing the business to lower overall profit contribution through under recovery of overhead – definitely not recommended.

The budgeting process starts with your team being tasked to evaluate the opportunity for their individual area, along with identifying actions and plans to support this. Given the amount of analysis and data required budgeting needs to start three to four months out from the start of the next financial year (April to March).  When taking into account the demands on the business and manager time through the December to February period, your budgeting process really should kick off around October – are you ready?

From this business planning also comes your marketing requirements – to be formed into your annual marketing plan.

Next, you will arrange Budget Silos that fit your business model and support ongoing monthly reporting and variance management, determine who is responsible for each line item in the budget and task them to develop their monthly budgets along with the plans to support and exceed budget expectations.

Business strategy, new product development, customer and market intelligence, inventory plans, productivity initiatives, labour analysis, overhead recovery assumptions, Supplier management, Capital Expenditure and many other inputs are required to build a meaningful budget that your team takes ownership of and that identifies the KPI’s for each team member to ensure business targets are  achieved or exceeded.

Here’s the summary of what you need to get started with your 2017 – 2018 business planning and budgeting process:

  • Start the budget process early – solid business plans require collaboration and detailed inputs.
  • Take strong ownership of the budget process and assign responsibilities.
  • Note and track when budgeting tasks need to be completed.
  • Review and challenge data and assumptions made.
  • Finalise and publish the overall budget.
  • Establish agreement on key performance indicators and success measures for each of the team.
  • Implement monthly variance reporting.
  • Monthly Full Year forecasts should be maintained using your budget model.
  • Counter measures and opportunities identified each month and measured at the end of the month.
  • Celebrate and congratulate success, while constantly evaluating and monitoring areas under performing.

If you follow this process  at every step of your business planning journey, your team will be motivated, proactive and high performing.

Finally – put your own measurements for success as the business owner in place. Your job is to lead the team and have the team perform at the highest level. Start with structured business planning, marketing goals, budgeting and assigning accountability.

We are here to help you succeed and are ourselves measured by your success, so please contact us for a one to one on any aspect of this topic!

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