Alan’s corner: How budgets should not considered business plans

Alan’s corner: How budgets should not considered business plans

The purpose of an annual budgeting process is to be proactive and be in control of your own destiny. It focuses the entire leadership on the financial goals of the business and it makes them accountable. Without these targets, how can a business know if it's doing a good job or not? They are the score of the game. In this process, organisations usually use their previous year's numbers as a baseline to set financial targets for the following fiscal year. These targets will usually show an increase on the previous year. But there is a better way. The methodology used for setting targets is often a combination of a top-down and bottom-up approach. Top-down is where the organisation looks externally at what is going on in the marketplace and makes judgments on the implications of those external forces. Bottom-up is where the individual commercial teams set targets by customer segment, by product, by territory and so on. The bottom-up approach is typically based on a marginal uplift on last year's numbers. But it shouldn't stop there. Far too many big and small organisations think that because the 'numbers' are agreed, the planning job is now complete. Let's be very