The Four Steps to Your Secret Weapon
A recent Sunday spent driving down I-40 reminded me of the season upon us. Cars proudly displaying their respective collegiate teams set against a backdrop of changing leaves affirmed that the dog days of summer were only a memory.
Amidst this flurry of seasonal activity and with the dawn of the final quarter of 2015 lurking, one word takes its place at the top of a corporate to-do list: Budgeting. Before you start to hang your head low at the thought of planning your budget for next year, hear us out.
One could debate a number of different traits shared by successful companies across America. I would contest that if there is one common denominator for all companies that have “arrived”, it is this: there is a clear understanding of where cash will be coming from and where it will be going.
The “arrived” company has a game plan for the year, and a keen understanding of the x’s and o’s for executing against that game plan. In other words, that company has a budget, which can only stem from an effective budgeting process.
When looking to strengthen your go-forward budgeting process, consider these simple steps for a winning strategy:
Establish your goals and targets for the year
Benjamin Franklin said, “Failing to plan is planning to fail.” We’ve likely all seen the ramifications of ineffective planning – or worse, no planning at all. Commit to the budgeting process knowing this exercise will set you up for future success.
Start by thinking through what you want to accomplish over the next year, specifically the next 30, 90 and 365 days. Budgets are simply the numbers that define those planning efforts and will serve as a foundational tool for execution.
It’s all about the data (not according to Meghan Trainor, but trust us on this)
If you want to take your business to the next level, it’s time to get granular. Dive into the data and start making sense of it. This doesn’t necessarily require an analyst, but it also won’t happen at a 30,000 foot level.
Once you are ready to roll up your sleeves, begin with a review of your company’s historical financial information. Then take your customer contracts and other vendor agreements and get acquainted with them. Total budgeted revenue and spend for the year begins with that which is committed, providing a starting place for augmentation.
Compare your findings from the review to your goals for the year (see Step One) to ensure there is alignment and ultimate achievability. Let data help drive the process as you make decisions and determine a well-working budget.
Equip your team through communication
Budgets work best when used in a collaborative spirit across an organization. When communicated effectively, budgets should drive autonomy and empowerment, and should be something that the relevant business owners can own, be held accountable to and operate against throughout the year. Your budget should clearly articulate what success looks like, so leverage it as you drive toward that path.
Track your budget and report on it
With your budget in place and your team equipped, you are ready to file it away in a drawer. Kidding! The budget building process is just that if the budget is not tracked against over time (Major tip: How you put together your budget will impact your ability to track against it. Be sure to create it in a way that aligns to your general ledger reporting requirements - you will thank us later!).
Keep in mind: the budget is not meant to be restrictive, but rather a tool to help you meet your goals and targets. As circumstances require (significant over-performance or material underperformance), don't hesitate to replace your budget with a go-forward forecast that evolves with your ever-changing business.
In between the tailgates, holiday preparations and Monday morning quarterbacking, think through your own game plan for 2016. If the “b” word gives you heartburn, give Inflammo a call or drop us a note. We have guided a number of businesses like yours through this process. Call us nerds, but we get pretty “fired up” about this stuff. It’s just who we are.
Inflammo provides outsourced accounting and finance solutions to the startup and emerging growth communities. With end-to-end strategic finance offerings, Inflammo is the preferred provider of outsourced CFO and back-office accounting services delivered with integrity and sophistication.