As we enter the home stretch of 2018, most small businesses have already begun and finalized the process of putting together their budget for 2019. Time for reflection is over and most organizations are looking forward to 2019 and achieving all their goals.
Those small businesses who have a plan for next year have budgeted what revenue will be, what gross profit will be, and what net income will be. However, most of these small businesses stop there as just preparing a plan for the next year is overwhelming and exhausting. Now these small businesses are left with a budget that they only use to see if they are on-track or off-track during the year. While this is a useful analysis for many organizations, most do not take the extra step when developing the plan for the next year that can drive results within the organization and help the organization achieve their goals.
The next step I am referring to is spending time assigning responsibilities and action steps required to meet the plan. What exactly does this mean? Well, let’s take revenue for example. If you plan on generating $2 million of revenue in the next year, how are you going to achieve this plan, who is responsible, and what action steps will be required of everyone to meet this plan. How much of your plan is already sold for the next year and how much is required to be generated from new business or increasing revenue from existing customers? Just this simple example could involve multiple people from multiple departments within your organizations. The sales department may be responsible for generating new business, while your existing operations team may be responsible for delivery a quality experience and increasing revenue from existing customers.
It is very important that everyone on your team know exactly what they are responsible for and what the plan is for the next year, so everyone is working towards the same goal. It is also important as you begin to analyze your budget versus actual results because without a detail action plan you may miss the true root cause of a problem. If you are lagging in revenue without a detail action plan you might think the sales department is the problem because they aren’t bringing in new business, but in reality they are bringing in new business that exceeds the plan, and the real problem is the operations team is not delivery on the quality aspect, causing a loss of revenue from existing customers that wasn’t planned for.
So, while having a budget is very important, without taking the next step and developing action plans and assigning responsibilities to each line item in the budget, you are not taking full advantage of how a budget can help drive your organization to the next level and meet its goal for the upcoming year.
As always, if you have any questions or would like to learn more, feel free to reach out to any of us at Mackey Advisors (859) 331‑7755.