Four Tips to Build Next Year’s BudgetIt’s the time of year to plan and budget for 2017. We’ve all been through this process before. The importance of a budget cannot be overstated. It provides guidelines for expected income and expenses, it allows you to compare your anticipated financial goals with actual numbers, and it serves as an indicator for how your business is performing. It also allows you to plan ahead and determine what changes, if any, should be considered.

Jason Green wrote an article in Harvard Business Review providing four practices to make the budget and planning process more effective and less dependent on illusory projections.

Four Tips to Build Next Year’s Budget

Set Expectations

Plan meetings in advance and make clear any kind of projection needs to be supported by facts. Green says key assumptions behind projections must be detailed. He adds, the meeting should focus on a structured discussion but you also want to leave adequate time for dialogue and questions which can take the discussion in any direction.

Build the Case

Green suggests you take each business unit starting from the market demand, and work back to internal costs, capacity, and capability measures. Go beyond the “what’s” and start providing the “whys.” Green says to ask yourself these questions:

Complete your analyses before working on the actual budget. Once you’ve established market demand and key drivers, then start a discussion about your supply, cost position, and capabilities.

Green says, “Bringing both the demand and supply elements of the equation together provides the input for more informed decisions while avoiding the pitfall of assuming demand is a ‘given’ that requires little or no discussion.”

Define the Strategy

Take the role each business unit plays in the grand scheme of things and define the strategic role for them. Green suggests you use a 2x3 “Portfolio Matrix” for which the horizontal axis is "Growth Potential" and the vertical axis is "Economics.”

Whether you use the “Portfolio Matrix” or not, each role should be clear and transparent to everyone. Also, they should understand the role, how it was determined, and how it can change.

Allocation Decision

A lot of businesses use a horizontal approach, which means resources are spread evenly throughout their business units. Green says the actual resource allocation should be done vertically rather than horizontally. This means resources will not be spread evenly and will not just reflect last year’s budget plus inflation.

You need a budget in place to plan ahead, prioritize your distribution of funds, and measure if your financial predictions are met. It also allows you to make decisions in order to improve your business operations with clarity and efficiency.

What tips do you have to build a better budget?



Key Characteristics of an Effective Business StrategyA company’s strategy is the game plan business owners and management use to position their organization in its chosen market area, to compete successfully, satisfy customers, and achieve good business performance.

Business leaders have to pay attention to the developments in the world because they are intertwined with market forces that affect consumers and demand. They have to adapt their business strategy to a constantly shifting environment.

Changes in strategy should be done when it’s clear achieving a strategic goal is either impossible or no longer desirable, says Geoffrey James, columnist for Inc.com.

He offers some characteristics every strategy should include.

They are Not Tactical

People often get a strategy mixed up with a tactic. “Strategies define goals to be achieved while tactics define the actions you’ll take to achieve those goals,” says James.

For example, a strategy would be to double sales in a specific territory. A tactic would be to hire more salespeople in that territory to achieve their goal.

They are Measurable

If your goals are vague, you won’t know if you are achieving them. “You can’t manage what you can’t measure,” says James.

When you set goals, also set ways you will measure them to be certain they are successful.

Goals such as achieving thought leadership won’t translate to solid numbers. However if your goal is to double sales revenue in a specific region, you will have data to back up whether it was a success or a failure.

They are Actionable

Strategic goals are achievable through tactics. They are not dependent on forces you can’t control.

James says an actionable goal would be to double sales revenue versus increasing your publicly held stock price by 50 percent. Increasing your stock-price is contingent on the market.

They are Clear

Employees should understand exactly what their organization’s strategy is to achieve it successfully. A strategy requires continuous and clear communication. It should guide their decisions and actions.

They Include a Business Plan

“A strategy is just hot air unless there’s a tactical plan for achieving each strategic goal,” says James.

For example, if you want to increase sales by 50 percent in a specific region, your plan could include anything from investing in better lead generation methods to retraining employees to hiring new ones.

They Don’t Change Much

Strategies evolve as businesses evolve, but it’s important to know what does and doesn’t work. Once you know that, you can adjust your tactics and try new approaches.

A business strategy is an ongoing process, not something to set and forget. Strategic planning is key to looking to the future and creating direction to for a business to be successful. The key is to do what works best rather than trying to do everything.

What other characteristics do you think are critical in a business strategy?

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