For a lot of U.S. companies, the period after Labor Day marks the beginning of the annual process of starting to determine priorities and allocate resources for the upcoming year. I think it’s fair to say that most marketers put the annual budgeting and planning process in the “necessary evil” category, but I’m not one of them.
One of my previous roles involved working at a B2B media company for 15 years. I worked with and for the same Publisher for virtually that entire time, and while he loved the editorial side of the business, he didn’t love the commercial side of the business or putting together the massive business plans and budgets required for this $37 million business unit. After just a few years of driving millions of dollars in new revenue growth within my own department, the Publisher tasked me with the new job (on top of my existing one) of managing the budgeting and financial planning process for the entire business unit, hoping that I could help drive profitable revenue growth across the entire enterprise. I held the job for the next 13 budget seasons, and during that time we became the largest and most profitable business unit at the company.
Most department heads hated budget season (which stretched from late August until December), but I loved the challenge and process of taking our overall business strategy and working with the department heads to translate it into actionable department-level business plans and annual budgets. Once the annual budgets were established, we calendarized the approved annual numbers into monthly budgets that would form the basis for budget-to-actual comparisons in our monthly financial statements. Along with cider mill donuts and football, it’s one of the reasons that fall is my favorite season.
While I can’t possibly offer advice to deal with every tactical challenge you may encounter in putting together your budgets, I can offer some perspectives and thoughts to make budgeting something that supports, informs and guides your efforts rather than something you do just to “check the boxes” with your corporate finance department.
Plan First, Budget Second
Whether required as part of your budget process or not, it’s always a good idea to start with your overall business plan. Our rule was simple – keep it to a single page per department. I wanted a bullet-pointed, action-oriented list of each department head’s priorities and strategies, how they planned to execute those strategies tactically, and what resources (FTEs, outside resources, additional expense investments, changes to allocated costs, corporate resources, senior leadership involvement, etc.) they needed to do it. Revenue goals for income-generating departments were to be realistic, based on market trends and historical performance, and needed to be appropriate to and commensurate with changes in department spending.
Start at Zero
No matter how tempting, resist at all costs the inclination to carry over last year’s budget, make a few minor changes, and call it a day. Use the opportunity the annual budget process provides to truly think through your priorities and performance and develop a zero-based budget from that plan. Determine if the team and strategies you have in place now are the ones that are optimal to help you achieve your goals for 2018. If not, what are you going to do instead? Are there opportunities to share services with other departments or otherwise reduce costs through outsourcing or other strategies? Can anything currently being done by an outside provider be done more cost-effectively or faster in-house? Be realistic about how quickly any additional investments are going to pay off in the form of increased revenue. Make sure all of this strategic thinking is captured in your business plan and in your budget.
Keep the Budget in Perspective
Once budgeting become more than just an exercise and something that is truly based on a foundational business plan, the numbers become less powerful. Other than in certain cases (commissioned salespeople, executives with incentive plans based on revenue or profit, etc.), achieving numerical goals is never the ultimate objective – merely the yardstick by which progress is measured. Breakthrough performance is never a result of taking last year’s revenue and adding 3%. Breakthrough performance comes from solid strategic thinking, testing new ideas in the marketplace, and taking intelligent risks by uncovering new tactics that further your long-term strategic objectives.