Why the Budget Matters
Ah, fall… the weather cools off, pumpkin flavors abound, the leaves change (or so I’m told; the cactus here pretty much stay the same), and for many companies, the start of “budget season”. That’s an accounting thing though, right?
Not exactly.
One critical step in ensuring a budget is a success is to have stakeholder buy-in.
To do so means the budget process is more than just an accounting exercise. By taking the time to gather stakeholder buy-in and input, management team members will feel more in control of department targets and how to execute on them. Pair this with a consistent month-end review process to follow up with leaders on where variances occurred and, importantly, why they occurred.
- Are there true cost increases/decreases?
- Did we miss executing on critical projects?
- Are there strategic initiatives getting delayed?
All of these discussions can help the leadership team make proactive decisions about how to guide the company forward.
These discussions are less about whether there was a budget variance and more about why there was a budget variance. Understanding why leads to key learnings and better decisions moving forward.
Having a good budget plan can also be critical in external party conversations.
This is especially true if you expect performance over the coming year(s) to be significantly different than the year before. The budget helps tell the story of where your company is going and how you’re going to go get there. It lends credibility to “the numbers” part of your external story which makes conversations with bankers, investors, and potential buyers much smoother.
Regardless of whether or not there are capital transactions on the horizon, a good budget is a critical tool in the hands of any business leader to understand driving factors of company performance and plan for the future.
