Gentlefolk, 2020 budget conversations have already begun. As Ted Plush taught many of us, “Even when they say it’s not about the money…it’s about the money.”
Here are my tips about building and monitoring budgets, each learned through painful (and embarrassing) mistakes.
Building budgets and getting approval
- Understand all the categories and what’s included in each. Watch for occasional changes from the previous year.
- When asked for a budget proposal, go in with your high plan and have a smaller plan in your pocket. This is the correct strategy for both capital and operating requests.
- Be able to defend every line item. Tie budget requests to organizational outcomes that no one disagrees with.
- Call out non-uniform spending that you can forecast (e.g., particular events and one-time payments). Many finance systems by default spread annual budget uniformly over the months. Some financial reports highlight month-by-month variance and make it look like a bad thing.
- Front-load your planned expenses in the 1H of the fiscal year wherever possible. Three years out of four you’ll be asked to trim 2H spending to hit a fiscal target.
- Build a budget plan that supports your team’s ability to deliver good work, even when trims are necessary. Fight to keep money in the budget plan for training and helpful travel.
- Make peace with the fact that you aren’t going to be told everything you’d like to know, and move forward.
Monitoring budgets and managing through the year
- Monitor monthly reports. Put time on your calendar to do so. Get answers to your questions. Get those answers before anyone else asks you, especially your boss.
- Encourage your team to be spending-smart. The cheapest way is not always the best choice…but at least it should have been reviewed as a choice.
- In a downturn, cut more aggressively rather than being the laggard. If you created your budget plan correctly you already had ideas about how and where to make cuts.
- Be mindful of the fully-loaded costs of decisions. Promotions, salary increases, mid-year hires, and depreciation have future year impacts.
- Generate options for what you would do with savings or reallocated funds. Those monies go to people with articulate use cases.
- The purpose of a budget is to deliver value to the organizations. It’s generally ok to be a little over-budget if you delivered kick-ass results, but better to be slightly under-budget. Being wildly under-budget hurts your credibility.
Getting help
- Cultivate relationships with Finance colleagues; they want to help you!
- Require direct reports who have budget tracking responsibilities to give you reviews and updates. Don’t assume; trust and verify.
- Find people who are truly good with budgets to assist you as you move into more senior roles with broader scope of responsibilities. This talented person is a crucial ally. Never forget, however, that you are responsible for the budget.
