Advantages of Business Budgeting – Part 2 Strategy then budget

Your strategy must led the business budgeting process

In my first post on business budgeting I discussed the advantages of a collaborative approach setting out your budgeting process. I know from personal experience that a lot of staff in many companies view a budget as a bother rather than as a useful tool. If this is a problem in your company, it needs to change or it becomes corrosive and demotivating.

A budget should be simply a financial picture of something much more important, and that is the company’s strategy. The goals and objectives planned for the next one or two years will determine how the business is expected to perform. The budget – or forecast – should reflect the anticipated revenue streams and the resource costs that flow from these plans.

It follows that budgeting should be a dynamic and motivating process because it is a core part of enabling your strategy. Regard it as an opportunity for showing strategic leadership throughout the entire organisation. It is essential that the process involves as many people as possible, and that decision-making is bottom up as well as top down.

Demonstrate Leadership

Demonstrate leadership, and show that the budget is just one part of the overall implementation of your strategy. The budget should never be the ‘main thing’ where it takes on a life of its own. In many companies, the budget becomes a straightjacket, where managers are afraid to ‘go over’ their budgeted expenses. They feel they must chase budgeted sales at all costs. Initiative can be stifled and in such an environment it’s all too easy to become internally focused and blind to what’s actually happening in your market.

Throughout the company involve people in the overall strategy process so that everyone is motivated to develop a meaningful budget because they will each have responsibility for their own inputs and results. Have an open culture that encourages initiative because employees are assessed on delivery of goals rather than meeting numbers.

Such a process is obviously more challenging than one which typically revolves around the finance department sending out a bunch of spreadsheets. Allow managers to really think about how they can contribute to the strategy. Which means that they have to really understand that strategy. So the first requirement is good discussion and communication of goals and objectives.

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