Lobue News: Sep 14, 2016

Budget Season, Already!

Check your calendar, it’s budget planning season and time to call The LoBue Group.   Budget planning meetings are “coming soon,” and are likely to be as predictable as a Hollywood formula script.  Complete with a seemingly insurmountable challenge, the protagonists will enter act one and state their goals.  The antagonists will reveal themselves in act two with considerable resistance.  In the final act, the protagonists will fight back and win over the hearts and minds of the rest and, unless a tragedy, they all join forces to achieve success.

Of course, the script is broadly predictable, yet the details are what make for a successful ending.  The reality is that the many deliberations make the budget process complex, daunting, and sometimes frustrating.   Additionally, the more iterations there are to the budget, the farther removed from reality it will become.  To cut to the chase and reduce the drama there are a few practical steps to take.

  • Understand the reality of the market
  • State the goals early and often; It’s not all financial
  • Prepare; Know before you go

The Reality of the Market

Most organizations have realized and are already actively pursuing cost cutting programs in parallel with service and sales improvement initiatives.  Some predicted more favorable market conditions in this past year, yet the current “recovery,” the slimmest in the last 40 years, has not really had a rising tide effect.   The upcoming planning phase for next year’s budget will reflect this reality in some way.  While there is nothing wrong with optimism, it is likely that budget gaps will not be reached by increasing the top line.  In fact, higher sales targets may put undue negative pressure on ROA.  Success will have to be defined with a balanced strategy, improving business results from top to bottom, without a heavy reliance on top-line growth.

  • Always be sensitive to how much new revenue is required to produce $10 million in EPS vs how much expense reduction will achieve the same result.
  • Never meet your goal by doing an across the board percentage reduction in expenses or increase in revenue. The former creates service problems and undue confusion within the ranks while the latter is usually a pipe dream.

State the Goals

The budget planning process starts with a set of goals and is developed with projections, revisions, and a series of challenging questions.  Most often the robust discussions revolve around the financial goals; more specifically, the dichotomy between improved sales and reduced expenses.      

Every organization has its own set of goals reflected in the detail of the budget itself, and budgets that are out of line with trends in revenue or expense will likely not be effective enough to support any strategy, however certain common goals are quite clear and must be met:

  • Next Year must be better than the last, financially
  • There needs to be commitment to the final draft
  • The budget must support the strategy

Without demonstrating improvement,  the budget probably will not get approved.  Without commitment, the budget will not be realized.  Worse, inconsistency with the strategy is a planned fail.

Not to confuse a strategy with desired financial results, every budget should be tested to ensure the business strategy is in fact being adequately represented in the process.  Budgets should not be about financial results only.  Customers, Employees, and necessary investments should also be represented.  Without a ready business case for added investment and continuous improvement, the budget process becomes void of action to support the strategy beyond financial results.

As revisions occur, be sure to restate the strategic goals that balance:

  • Service
  • Compliance
  • Sales
  • Efficiency

Be Prepared

Do not get stuck without a plan in January for what you committed to in October.

One way to gain alignment and agreement early in the process is to take pause to look at operational improvements that will enhance sales, improve service, and increase efficiency.  Conducting the necessary analysis to pinpoint weaknesses will make it clear what operational improvements will need to be made, incorporated into the business plan and reflected in the budget.  Agreeing on how to meet the objectives is much more productive than negotiating budget projections.  Knowing how targets will be reached is an important part of gaining commitment, building confidence, and achieving results.

  • Critically relook every existing initiative and slash those that are seriously behind goal or no longer meet current goals/strategy.
  • Do trend analysis on every expense line item.
  • Use zero base budgeting to highlight opportunities.

The time to determine the tempo, accuracy, commitment, and results of the upcoming budget session is now.  Finding the time and resource needed to identify the next phase of operational improvements may be difficult, especially while diligently working on this year’s goals, however the time would be well spent.  Conducting an assessment to pinpoint how and where operational improvements can be made will ease the budget process and pave the way for achieving results.

Most of all, Prepare to be an optimistic protagonist and instill confidence while you still have time.

Business Assessment and Budget Preparation

Preparation requires time, resource, and structure.  The LoBue Group provides an in-depth assessment to define operational improvements that will be needed to meet next year’s budget and business goals.  We define how bottom line results can be met in a structured and predictable way.  A business assessment is the perfect match for budget planning.

The Right Timing

Taking a pause to ascertain the specifics of how continuous improvement activities can support the business strategy should be considered a critical part of the budget process.  Dedicating the necessary time and resources to analyze business opportunities will coincide with budget activities to determine the impacts and changes needed for 

  • Staffing
  • Expenses
  • Investment
  • Sales

Opportunities for better business results exist, and it takes a structured approach to identify and capture the benefits.    Improvements to service, sales, efficiency and compliance can add up to a realistic set of budgetary goals.  It only takes a little resource now for achieving all the needed results next year.

LoBue Group programs are always self-funding.  Ask us about the many situations where we dramatically improved margins for clients with real-time improvements in market capitalization.