1. Confusing budgets with strategic plans.
Many organizations confuse the budgeting process with the strategy process. There has not been rigorous debate and discussion around the strategic plan and yet the budget is to be completed by mid December. Your budget is supposed to allow you to operationalize your strategy: it’s not meant to be a re-do of your all your Key Strategies. If your strategy is no good, not well communicated or is outdated then how can one ever expect to have a good budget? Poor budgets can mostly be traced back to bad strategies. It’s critically important that your employees understand your Mission, Vision, Key Goals and the Key Strategies. When this is done well the budget takes those Key Strategies and lays them into a format to allow measurement by month, with an owner and milestones that under-pin superior execution.
2. Starting too early and making the budgeting process feeling like a six-month ordeal.
If your budget goes through many iterations one will find that the executives may have become too inwardly focused. Remember that you are in business for your customers and if their needs are not being met they will go elsewhere. Make sure that your budgeting process is clear, tight and well managed. You want your management helping customers versus worrying about the fifth budget presentation to the CEO. Do it once well and it will serve you well.
3. Either overly aggressive financial goals or lay-up goals.
Both are dangerous.
If you have a very tough budget you run the real danger of having the organization turn off. Sales quotas become unattainable. Morale suffers. The organization becomes miserable and you will see a talent exodus.
Layup budgets are dangerous in a different way- your company many turn in good growth versus budget but if your competitors are doing 30% growth and you are doing 12% then you are losing share. Being able to adjust budgets through re-forecasts is a smart way to ensure that you are maximizing the opportunities.
4. Lack of communication to employees.
Now that the budget is completed is it time to rest?
Not at all. Now is the time to get out and make sure each department and function leader takes the time to explain the budget and how it fits into the company Mission, Vision, Goals and Key Strategies. Taking the time to help employees understand how the budget aligns and supports the company Mission and Vision is key as it helps employees see how the work they do drives the company’s Mission. Treat your employees as you would treat valuable stakeholders and do a professional rollout of your budget. Celebrate and please do not let the CFO be the only one who talks about the budget! This is an opportunity for the Leadership team to show how they built their budget and how they will deliver on their budget.