Preparing a budget is "easy" for an accountant and small business people who have some finance training. However for many it is the stuff of voodoo.
But when you break it down, there is no real mystery around the preparation of a budget, it is based on your plans and intentions, costs that you can obtain from suppliers, and some judicious making of assumptions and estimates. In truth, any non-finance executive or business owner can do it if they approach the task logically.
Here are 5 basic steps to take to compile your budget.
1. Tell the story of your plan first.
A budget is no more than the costing of a story. Is your story one of expansion, or of reduction? Does your story include the need for more staff or capital equipment? Is your story about opening more stores?
So the first step is to provide a narrative of your operational plans for the period of the budget, usually a year. If you don't have a business plan, look at your business and ask yourself what you will do within it for the year ahead. List any new initiatives, identify any areas you either want to close or reduce in size, identify your...
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How non-financially trained people can prepare a budget in 5 easy steps
Harvard Business School change management guru John Kotter outlines the fundamental differences between Leadership and Management as follows:-
- Establishing direction vs Planning & Budgeting
- Aligning people vs Organising and staffing...
- Motivating & inspiring vs Controlling & Problem-solving.
In Kotter's view, while management produces an order of predictability, order, and the capacity to attain desired short term targets, the qualities of Leadership prodeuces change, often to a dramatic degree and often potentially useful change to create a future vision.
In my consulting, I use my own process called vision-driven planning, first creating a vision for the group (in great detail, to the degree that it is internally viable and credible) which is then quantified through a Balanced Scorecard approach ("If we were to achieve our vision, how must we look and behave in the area of..."). The quantification of the vision is converted into Performance Measures, and then these are redirected as Strategies.
It works exceptionally well for SME's in creating what I call a "POP" or Plan On a Page. However the obstruction I usually see is lack of "Leadership" in that often the SME owners and managers are extremely concerned with the now...
