Why the Budget?
Is worth your time ...

Why the Budget?

Thinking and talking about your business,

... where you're going,

and the route(ish) there.

Why a budget may be worth your time

When you set off in the car, you know where you're going, which route and approx how long.

 

It's the same with a business. Map it out, add it up, make a plan, check in along the way, update info, be flexible, adjust plans.

 

A map ... a route map

If you carry on as you are, where do you land?

 

In +1, +3 or +5 years?

 

Is this where you expect or want to be? 

What's your first reaction, and what's your second, third, or after a month? Starting a budget sparks these thought processes.

More importantly, where do you want to go?

What does it look like? 

Do you all agree?

Plan ahead for how 

For example, if you want to get to £5m turnover in 3 years, what does that mean for revenue this year and next. For this month and growth month by month? Are current customers growing, or what's the level of new customers you'll need to find.

You and your team

Start with you and your role. Would expanding mean more work, more hours and stress for you? Could this be a factor holding you back? Have you reached a growth point where you need to recruit, higher level, yes more expensive people, who will take over part of your role? Is there a compromise, promote within, recruit part-time, accept the dip in profits for the longer goal (and your own sanity).

Barriers to growth

To grow, where are the bottle necks? The impact on production, team recruitment, new product or service development? Identifying these early, rolling back high level timelines, starts the problem solving thought processes, and allows you to delegate other people to start on these. If a bottle neck solution becomes urgent, it'll most likely land and stay on your desk.

Change takes time

What changes are coming along? As well as the financial investment of change, change takes time on top of your and your teams day job. And can impact the business through lowered people time, on revenue generation or fulfilment or supporting functions.

Team input & ownership

People are the most complex factors, yet when they are involved create the budget, people tend to be more committed to deliver it and consider it fair. 

Your team have their own needs, personalities and opinions. Listening to what matters to them, their motivations, their concerns about the budget, may identify how they will be motivated.

 

For example, historical growing revenue with future projections, can reassure a supportive style manager, that their team won't be overstretched to deliver a growing budget. If an option, tie in salary increases and promotions for their team.

 

On the flip side, budgets can create calm, peace of mind

Your managers want to deliver on expectations. Breaking those expectations down, for example, into delivering on current customers plus X realistically achievable new customers, means they have clear goals to focus on.  

 

In this way, budgets can bring calmness, focus, effectiveness. Targeted customer delivery, targeted new business, teams who stay (key for any people business). 

Stress, from not knowing if what you're doing is enough, can overflow to your managers and teams.

Keep communicating 

Does everyone know where you're going? Check you have the same expectations.

What's does it all add up to?

What does X + Y + Z  add up to.

If keeping all the figures in your head, 

makes your head hurt, a budget can help.

Are you profitable, now, will be in the future?

As well as being profitable, what profit allows you to pay yourself what you need or expect to earn. Individually and as a team.

Starting a new project ...

What's the profit once you've considered all costs. I don't mean to dampen your enthusiasm, if it's going to, maybe hand over the detail to someone else. Ensure they are someone who will feed back to you honestly, and you'll listen.

Cashflow & profit hidden problems

Cash in the bank can hide an underlying decline in profits.

For example, is investment missing now that is needed for the future? In people training, marketing, office refurb, IT, production equip, R&D?

A budget is lot of questions

The numbers tell the story of  your answers

Cashflow

A budget looks at cashflow also.

 

Need external funding?

What funds are needed when you're planning for a new office, team growth, replacement equipment? 

Or to keep running normal business?​

What is the timing of your cash coming in and going out? Is there a cash gap you can shorten? For example, can you change your supplier terms to 45 days, agree to grow together. And employ a credit controller to keep customers to 30 days. Will these two release funds to support your growth?

 

A time to review

 

Price reviews

When was the last time you reviewed prices? Reviewed them all across the board, are they consistent? Small tweaks here, can make a big difference to your profitability. A budget lets you play with prices and scenarios, estimate impacts, agree as a team on your decision. 

 

Underlying trends

Is profit increasing or falling? Expected or unexpected? What's the source, investment in the future, or static/falling prices with costs going up? A falling profit may be small at first, yet the gap may grow over a few years, even if you give inflation salary increases.

Cost creep

Better to map costs before, easier than back peddling. On one budget I saved £300k, a quick discovery a new manager in an overseas office had come from a slightly different market, with a higher £££ interpretation of event food. Relatively easily overcome. Same as at home when you both say you want kids, do you check in how many, 1, 2 or 6? Same here, it's good to talk.

In summary, the answer to Why the Budget? is the process itself, the questions and your answers. The figures can feed into, and support, your decisions on your business.

A series of articles ...

Next one, 'What's the Revenue?' 

Lean on me

Supporting you getting commercially savvy about your business

Consultant Finance Director, for Start-ups, Scale-ups & SMEs

Practical, hands-on commercial support, in your growth, in raising funds, or planning an exit. 

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© 2019  Amy Newton