Edition 346 – What Budget?
On one of my client calls, we were discussing the relationship they have with their Key Supplier. It’s an overseas based company with an Australian branch office that runs on a calendar based financial year, rather than our typical 1st July through to the following 30th June.
“The General Manager was complaining about finalising their 2022 budget” my client remarked.
“Do you mean 2023?” I replied.
“No, 2022” was the response back from my client.
“So, let me get this right. They’re a large corporate, with an overseas based head office, that run their financial year from 1st January through to 31st December. Correct?”
“Correct”.
“And, we’re almost nine months through the calendar year and they still haven’t finalised their budget for this year. Correct?”
“Correct”.
“So, what are they doing?” was my astounded, follow up question.
“Who knows?” responded my client.
It’s like the Australian branch office is merely “ticking the box” on the checklist of what is expected of them from their overseas based parent. In other words, it’ll keep the internal auditors happy if and when they make their way to Sydney from the Northern Hemisphere.
Without a budget in place:
- What profit targets have they set for the business?
- What sales targets are they operating to?
- How are they planning stock purchases based on the seasonality of the business?
- What marketing budget is in place and what’s the overall marketing plan?
- How do they know if they’ve hit or missed a target?
- How do they understand what financing they may need at different times of the year?
The list of questions could go on, but in a lot of ways, the only thing that surprises me is the connection with the large overseas based corporate. Clearly, being lackadaisical about budgeting happens in large companies as well.
Too many small and family businesses don’t set a financial budget and, as such, simply treat every day as a repeat of the previous one. There’s no plan about the future of the business and, as such, it will always be a “tail wagging the dog” scenario. Basically, you do the work that people want you to do, rather than purposefully chase your ideal client and your ideal projects.
With my clients, we operate on a “Profit First Budget”, whereby we determine the profit objective for the year first, then work out what it will cost to generate that profit, which ultimately sets your revenue target.
In my 30 plus years of working with Small and Family Businesses, those that work to a Financial Budget tend to be the most successful. They’re more profitable, more cashflow positive and more driven in their business objectives. Those that don’t budget, on the other hand, are always chasing their tail.
This Week’s Tip
“Unless you start with a profit target, rather than finish with a profit result,
your Budget is flawed in terms of achieving your business objectives.”