The most important document of the year

Peninsula Team

April 27 2017

I’m a great believer in that how you start your financial year sets the tone for the twelve months that lie ahead. However small or large your business, this time of year is crucial. It’s the moment when you need to sit down and get focused on setting a budget. This is the road map you’ll follow to make sure your business is staying on track in terms of its goals and targets. It’s the most important document you’ll produce all year—without it, you don’t have a business. Budget setting is a key skill for a business owner. Focus not only on top line growth but on profit targets when setting your goal for the year. Remember the adage that, “Turnover is vanity, profit is sanity”. Approve all your budgets personally—if you run a larger business where line managers are setting targets for their own divisions, make sure you go through them individually and closely. The hard thing is to get the balance right—you need to ensure that the forecasts you set are realistic but also challenging. Too hard and your employees will be instantly put off and even disheartened. Too easy, and you’re not getting the most out of your people; you’re underselling their potential and that of the business. It’s only human instinct to set achievable targets. If you think they are being too conservative, then challenge them and encourage them to be more ambitious in their goals. One way of encouraging this way of thinking is by setting a reasonably challenging budget target and incorporating a “stretch” —the gold standard, which will involve attractive incentives if attained. It helps people to think beyond their comfort zone and push themselves. As Herbert Simon said, “One finds one's limits by pushing them.” Also, remember to link performance and salary. Setting ambitious but achievable budget targets, and linking pay increases to them, is your benchmark to ensure people aren’t just getting automatic pay increases for showing up. Similarly, in the business areas where people aren’t generating sales, make sure you set detailed KPIs to monitor performance so you, and they, have a series of goals to aim for. Take the time this week, if you haven’t already, to sit down and work out your business’s road map for the year ahead. Without it, how will you know where you’re supposed to be going?

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