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Wednesday, October 26, 2016
At the Astounding Leadership Insights conference which we sponsored in September, one of the presenters told the following powerful story.
A man was in a road digging a hole, surrounded by a group of people directing him. Each time he’d finished they told him, “That’s not what we wanted, dig another one.”
Before long, the street was littered with holes – and the man digging them was frustrated and annoyed. He had no idea why he was digging, so he saw the whole exercise as pointless.
Eventually, one of the supervisors mentioned the truth: They were looking for the gas mains, because there had been a leak. However, they’d lost the plans and had no idea where the gas mains were.
Immediately, the digger’s attitude changed. Now that he understood why he was digging a series of holes, he worked with renewed enthusiasm, and even made his own suggestions about where it made sense to dig.
The moral of this story? If you want your staff to engage with what they do, make sure they understand why they’re doing it.
It’s particularly relevant when it comes to your budget.
Many companies have trouble getting their staff to take the budget seriously, and stick to their spending limits and priorities.
One of our directors, Shirley Hoy, loves to relate how in a relative’s company, this became such a problem that he handed his staff Monopoly money. Every time they wanted to spend money for their department, they had to hand some over.
The point was to help them visualise their share of the budget, and make them more accountable for how it was being spent. It was certainly a creative solution!
But it’s just as important to explain to staff why the budget looks like it does, and how their own portion of the budget fits into the overall strategy.
Understanding where your piece of the jigsaw fits in is a very powerful motivator.
Without that context, the figures in the budget look random and abstract – especially if the
budget is divided up in the plain, faceless way that so many companies insist on.
With that context it gains meaning and purpose.
So tell your staff how the budget helps your company achieve its goals. For example, it is designed so that you have everything in place to raise turnover by 20%, or to help you conquer a new target market.
Then explain their portion of the budget.
Tell them: “Your branch is getting £X in order to make it a flagship for the UK,” or “We are increasing your budget for communications training, so that we can ensure the team works together seamlessly – and is ready to take the lead next year in a major project.”
Do that and not only will you have them fully on board with the budget, but – like our man in the hole – they may be able to make valuable suggestions about how to work within the budget, too.
If you’d like help creating a budget that will push your business forward and engage staff, let’s chat. It will help your business run much more smoothly.
Wednesday, October 19, 2016
We all know someone who’s always going to the doctor, worried about their health. They’re never truly ill and it seems like they never get sick.
I don’t think it’s a coincidence. Because they spend so much time obsessing about their health, they never miss a thing.
That’s why you need to check you business’s budget more often, too.
Many businesses never revisit their budget. They draw up a comprehensive set of figures, then put it away in a drawer for the next 12 months.
That’s a mistake.
When you set your budget, you are setting your goals and spending priorities for the year.
Inevitably, things will change – there will be unexpected expenses, the areas where you want to invest will shift, you’ll bring in more revenue than expected or there will be crises and emergencies.
That’s all natural and normal; Business is hard to predict.
But the budget you set months earlier is like a roadmap showing what you expected to be spending and bringing in. It allows you to compare where you wanted to be with where you actually are.
If you find there’s a significant difference between your budget and reality, then you need to understand why that’s happening.
Think about how close you came to the budgeted figures, what adjustments need to be made, if any, and what changes should you make to improve performance.
It’s not a question of right or wrong, or good or bad. It’s simply a way to help you understand more deeply what’s happening in your business, a benchmark to measure your performance.
I recommend you looking at your budget at the very least quarterly, preferably monthly, but this could vary depending on the nature of your business. Your budget should be an integral part of your monthly management accounts pack.
Is it highly volatile? How important is it that you stick to your budget closely? If you’re working to ensure your business can make loan repayments, for example, the risk of falling behind could be high. Depending on your needs you might need to look at it very regularly.
That’s no bad thing. Just like the hypochondriac whose obsession with health keeps them healthy, keeping a close eye on your financial figures will keep your business healthy, too.
You’ll get a deep understanding of what’s really going on – and never miss a thing.
If that’s a result you’d like to see let’s chat. The more insight you have into your own business, the more success you’ll see – and we’d love to help get you there.
Wednesday, October 12, 2016
Several years ago, an acquaintance of mine bought out the company he had been working for, together with four other managers.
To raise the capital they needed, they went all-in and re-mortgaged their houses.
It was an enormous personal risk, so why did they do it?
Because the company’s budget stated that the following year sales would rise rapidly, and they would quickly recoup their investment.
Unfortunately sales stuttered, and 18 months later the business was in trouble.
In this case, whoever drew up the budget (possibly one of those managers…..) was guilty of a classic and very common error. They had assumed a rise in sales, but the budget didn’t say how this was going to happen – what they had to do to achieve their goal, how much they would need to spend or where they would have to invest.
So it never happened…..
Your budget is worthless if the figures it is based upon are no more than wishful thinking.
To create an effective budget, you need to work differently.
Start with the question: “What do we want to achieve, and how much will it cost us to get there?”
So for example, if we want sales to rise by 20%, what do we need to have in place? Do we need to hire two more sales people? Buy a certain amount of equipment or give a particular department more funds?
The actions you need to take become your budget.
When that happens, the end point - that 20% rise in sales - is no longer an optimistic dream, but the natural consequence of your game-plan. And it becomes an entirely reasonable figure upon which to base your budget.
Don’t get me wrong: Optimism in business is great. It can sustain you through some of the darkest times your business will face and if there’s one thing for sure, you will face some dark times.
But when it comes to budgets, you don’t need optimism. You need realistic, concrete plans.
All the more so if the stakes are high – for example, if you’re re-mortgaging your house!
If you would like to formulate a useful, realistic budget for your business, please get in touch.
With a good budget, you are far more likely to see the growth you want.
Monday, October 10, 2016
“Plans are nothing, planning is everything.”
That was General Eisenhower - and as the man who oversaw D-Day, he should know. Before the greatest invasion in history his army spent, quite literally, years working out what resources were necessary, consulting 125 million maps (yes, that is the real figure), developing transport arrangements, and training troops.
Too many businesses fail to give budgeting the care and attention it deserves, throwing together some optimistic figures and then promptly forgetting about them for the year.
I believe this happens because they don’t really understand why budgeting can be so useful.
As Eisenhower was aware, the true value isn’t necessarily in the budget itself but in the process of drawing it up.
Some of the plans he drew up for D-Day needed to be adjusted on the ground – indeed, he very nearly postponed D-Day because of bad weather. Nevertheless, all those months and years he spent working out exactly what was necessary to win paid off, because the fundamentals were all in place.
He had the right troops, with the right equipment, and the right training.
Putting together a good budget is exactly like that. To really come up with meaningful numbers, you are forced to analyse your business in depth.
Why are you pouring resources into a certain area of your business? Are all these activities really necessary? What do you need in place to achieve your growth goals? Are those growth goals even realistic?
Only then can you decide on what your final budget will be for the coming year, and how to allocate available funds.
Just like on D-Day, you’ll probably have to make adjustments to your budget almost as soon as the ink has dried (as Harold Macmillan put it, “Events, dear boy, events”…).
But by taking the time to assess every part of your business, you’ll develop a deeper understanding of what’s really going on, and be able to make better decisions even when circumstances change.
So, try not to think of creating and managing budgets as an unpleasant task. Instead, view it as an opportunity – one which could be key to the success of your entire enterprise.