Friday, March 16, 2007/
Don’t let budget-time slip by; it’s a great time to write some solid growth into your plan.
The budgets loom — and so can disaster
The year is slipping by. We are a third of the way through. Christmas is coming rather than has just been, and at this point in the year, everyone starts thinking about budgeting.
It’s a great exercise, because we can work out in advance just how we will do financially over the coming year. Everyone knows the financial goals that are expected of them, and to make sure we grow, we have built in our 10% increase in sales while keeping a lid on costs. Everyone has got the message. What a year it is going to be!
If only! We are so often disappointed with our budget outcomes.
Someone was telling me the other day that they had tried budgeting. First, they did it themselves, and then they got in big-shot accountants. However, they never achieved their budget with the result that they decided it was a waste of time.
“So,” I asked, “how did you budget?” “Well, we looked at last year’s figures and decided that we wanted to increase the revenue by 10% without increasing costs.” (In fact it was slightly more complex than this, but at a simple level this was the approach they adopted).
“To what extent did you measure the performance of your opposition?” I asked. “Why would we do that?” “Because,” I said, “they might have a different approach to budgeting. They might in fact sit down in preparing their budget and have a look at you to see what you are doing, so that they can develop a strategy to take work from you. If they do that, just pulling numbers out of the hat will not achieve a 10% increase in sales. In fact, if your opposition is effective in their strategy, your numbers will go down and not up.”
You know, I was staggered at his reply. He said: “That is exactly what has happened the last two years. We have lost market share to our opposition.”
When you now sit down to budget, do you give a lot of thought to what you need to do to grow the business and increase sales? For instance, do you do a competitor analysis?
Nothing great, but try just walking into their establishment or making a sales call to see how they respond? Do you make inquiries as to the technology they have in place, and how yours competes with theirs?
Do you examine your customer orders and approach customers who have defected to find out why they have gone to the opposition? These of course are just some of the questions you ask and the inquiries you make when you are budgeting.
More importantly, I said to my budget-shy friend: “Do you talk in depth to your staff to ask them what problems they see in the way of growth over the coming year, and what resources do they need to help them bring about growth and get the numbers on the board?” “We have regular sales meetings,” was his reply. So I told him the following story.
I was called in to review a company that made polyurethane pipes. The foreman took me through the factory, which was as busy as you can’t believe. “What’s on?” I asked. “Well, we have a sale on at the moment of corrugated pipe and we can’t keep up with the orders.”
I thought that it was great that the sale was so successful. We then went out into the back of the premises and there lying in the open were miles and miles of plain polyurethane pipe. “How long has that been there?” I asked. “Ages,” was the reply. “Well, why don’t you have a sale of plain rather than corrugated pipe?”
He answered that the factory and stores people didn’t have a say in that area, and that all the decisions of this nature were taken by the sales team without consultation.
He said the people in the factory were ropable, and that he had done the sums and calculated the financial advantage that would have been obtained by selling the plain as against the corrugated pipe, but no one would listen to him. In fact, the opportunity for him to put his view did not exist.
So, when you are doing your budget, you not only need to be aware of what your competitors are up to but you need to dig deep in your business and get to the coal face to see what the people down there think. Chances are that you can blow your budget.
Louis Coutts left law and became a successful entrepreneur. His blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Click here to find out more.