3 ways to level up the lowly budget
Your budget details where you plan to invest your resources. If you’re a strategic business, it should also tell you why.
Hey there! I’m going to record voiceovers for each post moving forward. If listening to articles isn’t your jam, you can read them just like you did before. Ok, carry on.
You know how nice it is to meet people you socialize with digitally in real life?
I attended an event in Providence last week and got introduced to someone I already knew1 but had never met. We proceeded to have a delightful conversation about our lives, our work, and some challenges we see our clients face.
We discussed financials at length. He had been working with a business to get their books in order and shared that he found many businesses — big and small — don’t have their books set up properly, which meant they couldn’t apply the insights from their books to their business.
I brought up the issue of budgets. Experts write articles that say your budget should align with your strategic priorities. In practice, most businesses dust off last year’s budget, bump the numbers up a bit, and call it a day. Most of the time goes into a laborious approval process.
My friend and colleague exclaimed, “I know! Your budget is really a statement of your values.” He made me think of a speech by Mary Camden in 7th Heaven when she presents the church budget to the deacons and makes the same point.
It’s likely you’re developing a budget for next year as we speak. Here are three ways you can level up what seems like a tedious operational must-do into a strategic instrument for your business.
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#1 Stop talking about costs. Talk about investments instead.
When we assess our business financially, one of the things we do is look at how much money is coming in against how much money is going out. Bare minimum, we need enough coming in to match what’s going out. We often call what’s going out expenses or, more commonly, costs.
It’s accurate. It’s easy to understand. It also relegates the things that fall into this category to mere numbers in a spreadsheet — and ones you want to minimize. I recommend calling your expense lines investments. When we invest in something, we bestow it with value. We believe it’s going to pay off positively in the long run, and thus, we nurture it.
When we shift our language, we shift our understanding. People are now an investment, which expands what we should do for them to help them do their best work. Since we’re here to deliver value, we need to measure investments to see how they performed. Did they deliver the intended results? And infrastructure becomes a series of strategic choices so we have the right processes, tools, and people to do what we do — and do it well.
#2 Start with a fresh document and add a ‘point’ column.
I can hear you protesting, “But this will take more time.”
Maybe. But it’s time well spent. The goal in starting with a blank document isn’t so much to ignore what you spent last year; it’s to assess the things you spent it on. Are these the activities that you want to continue to invest in as a business? Is this how you talk about them? Did you account for the new activities you’re starting? What about the ones you already chose not to pursue?
Your blank document only needs three columns: the name of the investment2, what dollar amount you plan to invest in that area, and then a third column titled ‘point.’
This third column should answer the question, “What’s the point of investing this money here?” Note if it’s a new, expanded, or decreased investment for your business and why. That helps to give the investment additional context.
Once you have this information in your document, then it’s fine to reference last year’s budget to get a sense of spending levels, as well as revenue projections3 to ensure there isn’t a disconnect between the resources you need and the resources you think you can secure.
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#3 Talk about your budget.
Often meetings about budget boil down to one question: Are we on, over, or under budget?
When viewed as a strategic document, your budget (potentially combined with other metrics or information) should spark a broader conversation, including questions like:
I can see more than 50% of the money for the investment in ABC has been spent. How is it performing? Is it delivering what we expected it to?
I can see we haven’t spent the investment allocated for EFG. Did we abandon that activity? Or has it not happened yet?
If we’re stopping XYZ pilot, where will we allocate the money we planned to invest and why?
Rarely are budgets linked closely to the strategy, and more rarely still do they drive strategic conversations. When you communicate the reason you made the investments you did, you’re more likely to create a budget that supports the actions you’ve chosen as a business, and you’ve created another view through which you can discuss your strategy as a team.
[1] This person is not fictional or nameless; the information simply wasn’t essential to the story. For those interested, I had the pleasure of running into Raman Shah (Hi, Raman!)
[2] OK, I’m not an accountant, but I know that platforms like Quickbooks can be quite rigid. In fact, I’ve wondered if this rigidity contributes to teams simply tweaking last year’s budget. You can do this exercise in a Google Doc regardless. Then talk to your financial folks and figure out how your document translates into the technology.
[3] Don’t overspend time on your revenue projections. No amount of carefully engineered pie charts will guarantee you hit your targets because you can’t make someone buy from you. Put your time into how you plan to hit your targets, then test and iterate to hit the target.
⊗ Hey, I’m Katie. I’m the mastermind behind MatterLogic™, the only system for running a business in the value economy. I’m an essentialist thinker, Entrepreneur contributor, thoughtful speaker, and jargon slayer. I shift your focus by asking “What’s the point?” Connect with me on LinkedIn and subscribe to WTP to get more of my perspective.
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