From Yesterday to Today: Refreshing Your Budget
June marks the end of the first quarter of the financial year. It's a critical time to re-evaluate and reforecast your budget – identify how you’re tracking against the plan, and how the plan needs to change to avoid leaving money behind.
Good budgeting involves three things – yesterday, today, and tomorrow.
Yesterday: Learning from the Past
Reflecting on past financial data is essential. It helps us understand what worked, what didn’t, and why. Historical data provides a foundation for informed decision-making and highlights trends and patterns that can shape future strategies.
Today: Making Informed Decisions
Today's decisions are influenced by yesterday's insights. Use the data to adjust your current spending and align it with your goals. Budgets aren’t just about controlling costs; they’re about granting permission to spend wisely. In tight financial times, this approach ensures that every dollar spent drives your business towards its objectives.
Tomorrow: Setting Future Direction
With a clear understanding of the past and strategic decisions in the present, you can confidently set the course for the future. A well-crafted budget serves as a roadmap, guiding you towards your long-term goals. It’s not just about reaching targets; it's about creating a sustainable path to success.
Redefining Budgeting: Permission to Spend
In 1984, the Harvard Business Review described budgeting as a tool "designed to set acceptable targets for revenue and expenses, then to increase the likelihood that targets will be reached." While the fundamental principles remain, the approach needs a refresh.
Moving Away from "Use It or Lose It"
The traditional "use it or lose it" mentality in budgeting is outdated. Instead, adopt a "permission to spend" mindset. This means aligning your budget with your organisation's core purpose and strategic pillars.
Start with Why: Begin by defining why your organisation exists. This purpose will drive your budgeting decisions.
Identify Key Pillars: Determine the pillars that support your purpose. For many, these pillars include technology, people, and customers.
Define Success: Clearly define what success looks like for each pillar. How should each pillar contribute to achieving your purpose by the end of the quarter or year?
Understand Interconnections: Recognise that no pillar exists in isolation. Understand how they interrelate and support each other.
Key Considerations
Rethink Your Budgeting Process: Traditional budgeting processes might help track progress but aren’t necessarily effective in driving you towards your goals. Innovate and adapt your approach.
Evaluate Pillar Contributions: Assess what each pillar contributes relative to its cost. Don't just replicate last year's budget. Explore how you can enhance their impact and efficiency.
Take Action
If you're still scratching your head about your budget for the new financial year, reach out to us about our Virtual CFO services and find out how we can help.
Embrace the past, make informed decisions today, and confidently set the direction for tomorrow. Your budget is not just a financial plan; it's your strategic guide to success.