The Cart Before The Horse

It’s the time of year where many companies start their annual budget process. Usually a long and iterative affair, leaders are asked to start predicting revenue and expenses for the next cycle, when we still have four months left to perform.

There is nothing wrong with this, apart from the fact that most strategy discussions only take place in the last quarter – after we have tied down the budget, which means we are driving strategy to meet revenue plans and are constrained by previously submitted expenses, rather than setting strategy and finding the right way to fund and manage the numbers.

In a recent meeting I attended with other Gazelles certified business coaches in Amsterdam, a peer said “I plan all my annual strategy meetings in August”. Initially, we looked at him aghast and then it slowly sunk in. He put the horse before the cart. 

His clients weren’t planning budgets blindly based on purely the desire to increase revenue and possible control or reduce costs. They were taking stock half way through the year about the Strengths, Weaknesses and Trends of their business (read a great article about this, Market Myopia: Blame The SWOT by Verne Harnish), using this to review their 3-5 year strategic thrusts, and setting priorities for the following year.  

It gave them time to research and refine their annual strategy plan, without the pressure of the end of year. It enabled them to match the budget to the strategy, rather than the other way around, and incidentally helped them justify certain expenses, or challenges on revenue. It could even prove beneficial, with higher revenue based on a strategic advantage. In addition, it gave them time to effectively communicate the priorities to their teams well before January 1st. Leaders believed more in the process and consequently were accountable for the finally submitted budget numbers. So many wins, I wondered why I’d not done it before.

This requires discipline and forward planning, but as the last quarter in the UAE is often a busy period I thought this was a great opportunity for both biz and some of our business coaching clients. It will take time, but I intend to try and change the cycle and mindset putting strategy clearly ahead of budgets.

It doesn’t mean you can’t have growth expectations, we typically work on a successful business is growing 20% year on year. Knowing what growth is expected can drive more innovation and helps people question the status quo.

If you don’t have the power to change the order this year, when asked for budgets remember to:

• Look at your three year strategic plan and think about how that might impact results and resources in the coming year.
• Take your biggest lessons learned from the last year and factor those into the budget plan, don’t just follow an existing pattern.
• Talk to other departments about their expectations of you, it might not be strategic but you can be tactical.
• Always think – revenue is vanity, profit is sanity and cash is oxygen.  

About The Author
Two decades ago, with just $700 in her pocket, Hazel Jackson founded biz-group, which she has developed from a small training company into a thriving business, servicing the Middle East’s corporate training, teambuilding and business strategy needs.