Holden Associates – Accountants & Business Advisers Blog

The economic downturn has meant that words predictable or stable are rarely used in the same sentence as the word business any more. Likewise it is outmoded to think that companies can continue to operate without implementing or using budgeting and planning processes within their business and not miss unforeseen opportunities or fall victim to unnoticed threats.

Adding up the numbers in your head, or jotting down a few numbers on a scrap of paper is not an effective strategy for managing your company’s finances. Businesses that survive and even thrive in the economic downturn are companies that are able to understand and demonstrate a clear link between their spending plans and their strategic development plans. As such they are able to adapt quickly or make midcourse corrections based on accurate, real-time data.

A Change of Mindset

Planning is an essential business management activity. Reviewing and adapting budgets is an ongoing activity, not just something which is carried out on an annual basis, or something that is hurriedly put together before an important meeting. Forecasting and budgeting should be the road map for your company. The value of planning is not in the plan itself, it is in the process of identifying, testing, and tracking the key performance indicators and assumptions. Whilst doing so you will be able to develop multiple scenarios that will increase the flexibility and agility of your business.

Achieving the benefits of business agility through budgeting requires the re-patterning of traditional thoughts and behaviour related to managing finances. To put it politely the financial side of your business need to become ‘sexy and attractive’. That is attractive enough to acquire new investors if needed and sexy enough for you to pay lots of effortless attention to it.

Looking forward

Static budgets have traditionally used historical events to predict future trends. As such they have tended to become ‘plans or records’ for financial purposes, rather than a flexible mechanism to drive agility across the company. Agile budgeting on the other hand, should be an adaptive and flexible process. That is a budget that is continually amended to reflect variances that arise due to changing circumstances. Continuous efforts and work will be needed to create quarterly forecasts and then re-forecasting for those quarters on a monthly basis

The objective of this activity is not to ensure accuracy but to create agility. The ability to be proactive in business is vastly more important than prediction. More than ever, businesses need a solid grip on where to spend, incisive visibility into how those investments are working out, and the ability to quickly make midcourse corrections based on real-time data.

The investments that you make today into the financial management of your business will reap numerous rewards in the future. Paying attention to the pulse of your business is a wise thing to do. Initial investments of time and a change of mindset will reap dividends for business no matter what the economic climate is like.