Welcome to Game Plans for Growth where this month we look at our top 10 Budget Blunders and why Budgets should be key to your business. We also cover why Budgets could be crucial if you ever want to sell your business.
What gets measured gets done. If you don’t have a well thought through plan as to where your business is going you won’t reach your destination on time. As a foundation to setting a good Budget, we will assume that you have already transformed your finance function and have well organised your data, with Management Accounts which you can trust to help you making the best possible business decisions. So, what should you avoid when designing your budget process?
Here are our top 10 Budget blunders:
1. No Manager input – Budgets imposed on managers so that they do not feel any motivation to achieve them.
2. Fantasy land Sales forecast written by an over optimistic Sales Director.
3. Lack of joined up thinking eg. Significant sales growth without additional sales resource.
4. Mixing up capital spend with P and L items.
5. Over optimistic product margins on products or services.
6. No phasing – taking an annual target and not working through monthly targets.
7. Hockey stick budget without corresponding SMART objectives.
8. Inaccurate Opening position.
9. Mixing up cash flow with profit and loss account.
10. No Integrity in budgets, where cash flow is not integrated with Profit and Loss account.
The End Result
We believe that every business deserves a well worked Budget, fully worked through which allows the business owner to properly understand the relationships between Profit, cash and balance sheet. Indeed, our Virtual Finance Directors often build fully integrated models for clients, then hold ‘what if’ meetings where we can flex the model for any likely variations from the plan. This tends to ‘de-risk’ the plan and enables the business owner to plan for likely for a range of outcomes rather than the ideal one.
Please also remember that potential acquirers of your business will take a great interest in your Budgets and how your business achieves against them, so Budgets are crucial to your exit strategy too.
If you would like a chat about helping you to build such a Budget please contact us.