You know the one I mean. Where the long-suffering, under-recognised company accountant has to round up marketing, operations, HR, supply chain – none of whom want to commit to anything tomorrow, let alone in 12 months time, and plug all their sand-bagged numbers into an excel sheet. Then there’s the inevitable ‘but we’ll just be told what to put in anyway’, ‘it’s never enough’, ‘I’m not committing to that I’ll never get my bonus’ – in other words, no buy in. And to top it off the business will probably spend months of resource time preparing something that will be out of date the day it’s finally completed. Which is probably well into the first quarter of the financial year.
The big issue for me though, is that the traditional budget process stunts growth, agility, and opportunity when an initiative is side-lined as it ‘isn’t in the budget’. Growing, progressive companies need to look for reasons to do cool new stuff, not for reasons why they can’t or shouldn’t.
Further, traditional budgeting assumes the end of the financial year to be some kind of D-Day goal or aim (pending the next year’s budget), when in reality it is just one day and not necessarily aligned to the ebbs, flows, and cycle of the business itself.
So what’s the answer? A growing number of companies are adopting the principles of Beyond Budgeting (www.bbrt.org), which in theory I like but I’m not a big fan of religiously following generic principles and models just because they’ve been published in the Harvard Law Review. Even if they have been developed by people far smarter than I am.
What’s needed is a rolling forecast process that works for your organisation. It should be done monthly, will easily highlight where the issues and gaps may be, and allows for changes in the business, the business environment, and indeed the world in the event of, oh I don’t know, a pandemic?
But, but, but!! I hear you cry. My bank wants a budget! How will I motivate my staff? Wont I spend even more time doing a monthly forecast?
The bank can have a copy of the 13 month rolling forecast that was updated yesterday following the addition of a significant new client/downturn in the industry/appointment of a digital marketing guru with a high ROI – whatever the case may be.
The staff will be more motivated through having KPIs that they can control (such as expenses/sales percentage, or employee engagement/customer net promoter scores, or production downtime reduction), than an absolute budget profit or expense ‘target’ set over a year ago.
A living, breathing, rolling forecast that can have scenario modelling feeding off it to give a long term view of prospective capital projects, cashflow needs (SUPER important), KPI & dashboard reporting, and upside/downside planning, is the single best thing you can do for your business and people.
The banks will love you for it almost as much as the company accountant.