By Brennan de Raad
“In preparing for battle, I have always found that plans are useless but planning is indispensable.” – Dwight D. Eisenhower
As a planner and financial-minded business owner, I can appreciate this quote for the truth it brings. Unfortunately, I see many of the business owners I work with agree with the first half and throw out the rest as they fly by the seat of their pants toward an unknown destination. “Business is good! Why would I stop to plan?”
The problem with that mindset is it eventually fails and you’re forced to make strategic decisions in stressful scenarios leading to less than ideal outcomes. Consider these five actions as you build your 2020 budget:
1. Look Backward before Looking Forward
Let’s consider where you’ve been by opening your last 12 months of business performance. What revenue types are increasing? What’s occurred that was unexpected? And how did the business perform versus your expectations? Deciding what you’ll do in 2020 needs to be rooted in the truth of the prior 12 months and is worth the initial investment of time and consideration.
Recommendation: Ask your accountant or finance team to prepare and send financial statements for October 1, 2018 – September 30, 2019 by month in Google Sheets or Excel. Then book a meeting with yourself for 1-hour to review and document questions.
2. Brainstorm Major Initiatives
Entrepreneurs and business owners are full of new ideas and the ability to quickly start them. It’s why the business exists, but too many ideas can also lead to a lack of follow-through. You cannot have a new initiative every week and expect your staff (or budget) to operate systematically. How do you find the balance? The best solution is to make a list of all the potential ideas and then determine which 3-5 ideas are most worthy of your business’ time, investment and energy in 2020.
Some questions to consider in this process include: What opportunity does the business want to take on? Are there major challenges that require resources of time, new talent, or dollars? How will you acquire more customers? Drive higher profitability? Do any team members need to be incentivized differently?
Recommendation: Do this exercise in an off-site location with a whiteboard and design the brainstorm to last at least 3 hours uninterrupted.
3. Decide Who Will Be Involved
Perhaps the most important decision of all is deciding who will and will not be involved in the 2020 budget process. Avoid the headache of having too many cooks in the kitchen by asking who must be involved and have complete buy-in for 2020? This is typically the business owner or CEO and members of the leadership team. Limit the group size and identify a champion, ideally the CFO or COO. While it’s important to get feedback and debate, the focus is key to arriving at a decision and the champion’s role is to make the final decisions.
Recommendation: Be cautious. Everyone has an agenda to improve both their area of the business, so you must ask “Why?” to requests for larger budgets.
4. Build Your KPIs into the Budget
Begin with the end in mind as it relates to Key Performance Indicators. KPIs are how companies can distill complex budgets and strategies into simple metrics that are easy to understand and measure.
Do you already have strong KPIs? Great, then build them into the budgeting process by including ratios, dollarized targets or percentages into their own rows in your budget. This forces focus and also identifies when the budget is out of line with a reasonable KPI.
Recommendation: If you don’t have strong KPIs, I’d recommend reading Measure What Matters by John Doerr to get clear on how to set up measurable metrics based on objectives.
5. Set a Deadline
What gets a deadline gets done and this is even more true for annual budgeting. As the owner, you must empower your budget champion to communicate this and hold firm on the final date. Set a specific meeting date, time and location to present the high-level summary budget to your team (including a calendar invite) five days after the due date to really provide motivation.
Recommendation: Your 2020 budget should be finalized no later than December 1st in order to provide time to the team to start planning and executing.
Brennan de Raad is the founder of Vessel Advisors. He serves as an outsourced C-level executive to managing partners and founders with a focus on strategic finance, technology, and metrics. He works primarily with professional service firms and software companies where he brings his experience of developing and implementing strategic financial and operational plans in growth-stage businesses and early-stage start-ups. You can contact Brennan at firstname.lastname@example.org.