Budgets – What was your New Year’s Resolution?
We often view the New Year as a clean start – an opportunity to improve on the previous year. Perhaps your New Year’s resolution is to become more efficient in 2013? Recently I helped an organisation to draw up their budgets for 2013 and it revealed a few interesting problems.
The first request for information drew a disappointing response – a couple of minor items and some estimates that gave the impression they were based on last year plus a bit for inflation. Further prompting generated a little more discussion, a few new items and not much else.
Two things became clear.
- That the budget was seen as something finance people prepare and nothing that anyone else should have to worry about.
- Although there was a target profit level, there were no plans as to how this would be achieved.
My concern was that either there were no plans or that any plans that did exist were still inside the head of the owner/manager. A conversation with the manager seemed the next step. So, I asked, “What are your plans for the future?” This revealed the source of the problem – a lot of good ideas but no firm plans or targets.
For the newer business it seems very obvious to have a plan and some targets. However, as a business becomes more established and some of the early goals have been met, business as usual can become the only target. This could be caused by constant crisis management, a heads in the sand approach to problems or even just a lack of inspiration.
It is perfectly reasonable to have a financial target, say for profit to be £50,000 for the year, but it is very difficult to manage resources and priorities effectively without a clear plan. None of us can predict the future but every business should have a vision of where it wants to be at least five years in the future. Looking three years out you should be able to set some goals to help you towards this vision. By thinking about the next three years it becomes much easier to identify the actions required to achieve those goals and what you are likely to be able to do within the next year. Only once you have your action plan you are ready to calculate your budget.
A budget considered as part of the overall strategy of the business won’t just deliver better profits and more predictable cash flow, but a shared sense of purpose and better focus on the future of the business, whatever its size.