The fourth quarter is the time of the year when business people typically work on preparing budgets for the coming year. This is an important process that should involve all of the leadership of the business, in some capacity. Having a good idea about what to expect for sales, expenses, and cash flow, are critical to running any successful company.
But budgeting is not the same thing as planning. Though many business people operate as though, and they don’t understand the difference.
Business planning is the process of stepping back from the current financial picture of the business and asking questions, then deciding on answers. Questions to ask should include:
– “What business are we in?” Are we in the personal lines, commercial lines, commission, fee, advice, service, sales or some other kind of business? This is a question about what we fundamentally do.
– The second question is “What business(es) do we want to be in?”
– Third is: if the answers to the first two are different, “What changes do we need to make?”
– The next question is, “What are our growth plans?” This isn’t a question about what is going to happen to us because of external forces (like commission cuts, rate actions, current trajectory of employees, etc.). It’s a question about what we want to happen and what we’re going to do to make it happen.
– Following logically the next question is, “What resources will we need (money, people, equipment, etc.) to make what we want to happen?
– Finally, “What specific steps, actions, investments will be required to do all of this?”
The list above doesn’t mention budget at all does it? That’s because the budget comes from the answers to the questions. The budget isn’t a document that just projects the current situation into the future (unless that’s what you determined from the planning process).
A big key to understanding whether you’re doing “planning” or not, is to see who drives the process. If it’s the accounting department, you aren’t planning. If the driver is the visionary and operating leadership, it may be.
Budgeting is critical to a growing business because it’s what allows you to execute the plan without running out of cash. But it, by itself, doesn’t grow anything.
Planning is the process that tells you where you’re going. As Yogi Berra said, “You’ve got to be very careful, if you don’t know where you are going, because you might not get there.”
http://oaaonline.net/wp-content/uploads/2016/02/logo-blog-1.png00OAA Adminhttp://oaaonline.net/wp-content/uploads/2016/02/logo-blog-1.pngOAA Admin2018-11-13 11:41:462018-11-13 16:07:30Budgeting is Not Planning