It is that time of year again, budget time.
In most businesses around Australia, at least those that will be around in a year or two, people are wondering where they will find the time to do the budget preparation for the coming fiscal.
To make it easier, following are some simple guidelines to apply to your thinking.
Where are you now.
Before you set out on the planning of any journey, it is useful to know the starting point. This tends to avoid a lot of wasted effort and cost, and unnecessary frustration. Having a very clear picture of your current position is vital, but if you have left the development of that picture to the planning sessions pre budget, it is probably too late. Developing a deep understanding of your current situation, and most importantly the drivers of that outcome, needs to be an incremental and inclusive process that is happening in real time, all the time.
Where is it you want to go.
Again, obvious, but often overlooked. Good businesses have a strategic framework in place that delivers clarity and priority to the long term outcomes being sought, so the annual budget is just another step along the path. However, in the absence of a strategic framework that makes sense, a disturbingly frequent situation, set yourself some goals to be achieved, and the annual budget is the operational plan to get there.
How will you know when you get there.
Measurement for measurement’s sake is dumb, but having the few key measures of performance that really tell the story of your progress towards the end point is essential. Knowing what ‘success’ means is a core part of the planning process, but again, when that is left to the planning sessions, it is too late.
1/10 is not enough.
Another of the mumblings of my old Dad who used to say, ‘Son, you get 1/10 for the talking, the other 9 are for the doing’. In a business context, the planning is essential, but of no value unless it is implemented. Just like a holiday, you can have some fun planning it, but the real fun is when you are actually on the holiday.
Profit is a two way street.
To make a bob, you have to sell something to people who really want at a price that is more than it costs you to produce and deliver it. Pretty sensible, and pretty simple, but understanding your costs and really understanding the value your product delivers to the specific target markets is a touch more complicated.
Everyone is in marketing.
The days of marketing being relegated to the back office are gone. Customers now have all the power, and they are exercising it in all sorts of ways not contemplated just a decade ago. Highly sensitive, fragmented, and focussed communication channels are being used by everyone, and amplification happens at the stroke of a social media pen. Everyone who comes into contact with your products can have an influence, and everyone in your business is an agent of marketing. For heavens sake do not leave it to the kids who have marketing in their title, thinking they have it under control, because nothing could be further from the truth. The most valuable asset you have is the position your product holds in the minds of your customers and potential customers, commonly called your ‘brand’. It is not normally listed on the balance sheet, as the accountants cannot agree how it is to be valued until a business is sold, when it is called ‘goodwill’ but it is the leverage that enables you to be able to stay in business.
Count outcomes before dollars.
Financial results are just that, results. Dollars are just easy ways to count the outcomes of more complicated stuff. Spending time understanding the drivers of the outcomes being counted is a far better way to invest your planning time that just manipulating the variables in spreadsheets. What is it that persuades someone to buy from you and not the opposition, how can you reduce the hidden transaction costs in your business, how can you increase your stock turn and reduce your working capital, and thousands of other questions that need your time and attention before the budget profit and loss is locked away.
The smartest people are not in the room.
No matter how big you are, and how much money you spend on expertise, the vast majority of the smartest people, and those who could influence your outcomes are working somewhere else, some of them for your competitors. This simply means that you have to find ways to be sensitive to the competitive, strategic and regulatory environment in which you are operating, and feed that intelligence back into the way the business is run. From going to local networking events, to travelling to leading markets and suppliers, to hiring expensive consulting knowledge, to ensuring the operators in your business have a voice at the table, all serve to add to the store of ‘education’ the business has to call on at budget time.
When you have done all that, it becomes time to go and punch the spreadsheets, not before. One last point, seems to be a common last point in my various musings, look after the cash. It is the lifeblood of the business, if you do nothing else, look after it as you would your first born.