Business Budgeting for Better Results: Helping Managers Develop Better Budgets

By: Dale Mask

Your company is faced with the most challenging budget time you can remember. Managers are being asked to cut budgets and, at the same time, target their efforts to achieve better results. Too often, managers do not have the budget training they need to make this a reality. The reality for many managers is: a recession or near-recession economy, increased competition and increasing costs for necessary goods and services. How the manager uses this financial challenge to transform the budgeting process and effectively plan for the future can be the real key to their success as a manager and your success as an organization.

The temptation is to AXE the budget – the need is BUDGET PLANNING to target better results.

While the temptation may be to simply start cutting the budget, budgeting for better results requires collaboration, transparency, and the alignment of department and organizational goals. Since the budget touches everything, simply saying “I’ll do more with less” in today’s economy just does not work.

Most managers do not like the budgeting process. They feel like it takes too long, and yields little benefit for the effort invested. Training managers on the budgeting process helps by:

Making budgeting less painful and more productive
Aligning their department with organization's strategic and business plans
Bridging the communications gap with senior management
Overcoming weak budgeting process due to lack of understanding

Help managers avoid common budgeting errors.

Overstating projections. Enron is not the only example of over-promising and under-delivering. Realistic budgets and projections may make it more difficult to get funding, but the money you do get will be fiscally responsible. Having a budget that makes sense and is achievable makes it easier to have a profitable plan to follow – an important performance objective for any manager.
Ignoring real budgetary needs. If the plan shows that you need $40,000 to take a product to market, do not ask for only $20,000. Senior managers and controllers will only wonder why they should give you money for a project that will fail without additional funding. \ If a manager is going to show real leadership skills, they need to present realistic and achievable budgets.
Failing to budget appropriate timeframes. Failure to budget the appropriate items in a strategic timeframe will under-utilize finances needed to achieve goals in some months and can lead to overspending in other months.

In most every situation, there is a lag time between the finalization of the deal and cash collection. This is a fact of business and should not be a problem, assuming you are prepared. Unfortunately, many businesses run into serious cash-flow problems because they spend money they do not yet have. In many situations, purchases can be delayed for 30 days, or more, with a little wisdom, discretion and foresight. This can have a major positive impact in tough financial times.

(To this end, Finance for Nonfinancial Managers can be important training for many managers. Most fist-time managers have never received training on how to read a financial statement or training at any level of Financial Analysis.)
Not aligning department budgets with corporate strategy. Competition for resources within an organization is inevitable. Every business unit needs funding for both capital and operating expenses. Because needs typically exceed actual resources available, resources must be allocated to support key strategies. When the budget is linked to corporate strategy, managers and employees have a clearer understanding of strategic goals. This leads to greater support for goals, better coordination of efforts, and, ultimately, to stronger companywide performance.
Not ensuring that the budget accommodates change. Developing budgets that accommodate change help companies respond to competitive threats or opportunities more quickly and with greater precision. Plus, knowing that budgets have some flexibility frees the manager from the need to "pad" the budget to cover a wide variety of possible developments. This leads to leaner, more realistic budgets overall.

Formulating a vision and strategic plan for the department and the organization is the hard part. Formulating the budget should be the easy part, but this is where many strategic plans are shattered. When managers understand the budget process, crunching the numbers is far more simple. The key is training managers to develop and administer their budgets effectively. Managers who develop and manage their budgets carefully will improve performance in their department and help your organization meet and exceed your financial goals and expectations – even in tough economic times.

Business budgeting in tough economic times means more than just taking an axe to chop away the fat. Today’s business budgets require taking careful aim at how to best target corporate recourses to achieve strategic goals, and it requires the knowledgeable budgeting on the part of every manager with a budget.

By: Dale Mask

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