Budgets – The Most Wonderful Time Of The Year… Really?

While many large organizations spend their summers poring over budget details for submission and approval in fall, mid-market to small companies usually get to the planning/budgeting stage in the fall. So while we are looking at fall colors, changing weather and holiday planning, budgets fall smack into that scene too – Oh Joy! Questions that always seem to arise during this process…

Are Budgets Outdated?

Do budgets make sense at all? If we constantly tweak budgets through forecasts and projections, how much are we really relying on the budget by the end of the day? End of the quarter? End of the year? Are they really just to make the C-Suite happy or are the really useful and buildable for planning and execution?

I think all this depends on a few things – first of which is, are the budgets a basis for bonus? And if they are, are the bonuses achievable on several levels so there is no sandbagging or lowballing budgets in order for personal financial gain. Secondly, what are the budgets being used for? Budgets should be used for strategy (or some would say strategy builds budgets). Budgets should give us a general idea of what we can spend during the year for expansion, new technology, new infrastructure and when.

Top Down or Detail Up?

Every year, we analyze – should we budget up from detail or budget down from goals? Do we plan from expenses or plan from revenue?

I prefer top down but I’m sure there are proponents of the opposite who would be quite adamant about their position as well. I’m a 30,000 ft, big picture picture person. I’d rather look at where we want to be or want to end up and build to get there rather than looking at what we think we can do and then trying to get to where we want to be…. All semantics I’m sure. But top-down gives the ability to say – this is what we want, this is where we need to be, how are we going to strategically/creatively get there instead of how are we going to survive on what we think we can do.

And Finally…. A Static Budget or Rolling?

Have you considered a rolling 12-18 month budget, or a constant forecast rather than a set budget that may be tweaked via the monthly forecast? That would certainly make the “budget season” less obtrusive since the rolling budget would be giving us good historical info and a better basis for trends but what about really comparing to the initial goals? How important are concrete financial goals? I like to see an annual budget set as that gives a good indicator of what we were thinking as we looked forward to the year from the standpoint of all that we knew at that point in time. But I like a rolling budget from the standpoint of constant new information because that ends up being more accurate to current trends. The compromise? Set annual budget and frequent updated forecasts to final finish.