This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of budgeting, profit plans and post audits to determine if your business plans are really working. This process is routinely used by well managed companies.
Last time we discussed how to model your company and run various scenarios to determine how your company might perform under different conditions. This is however only part of the process. To determine if your assumptions and projections are correct you need to own up to the actual results that have resulted from your business plan. The concept of a business plan is to get the results right, not design a model that works in theory, but gets the right answer.
Many people think that budgeting an onerous accounting exercise where one goes through the motions of extrapolating what happened the last year or two and assuming that things will continue on the same path to arrive at next years sales and profit. Others believe that if they were successful in the past you will continue to be so in the future by doing the same old things. And others are under the impression that you can somehow reverse your fortunes by trying harder by making more sales calls and tinkering around the edges.
The budgeting process comes out of the creative profit or business plan which should be a thought provoking exercise. The accounting portion that generates the P&L is the result of that process and requires A) a well thought out program that recognizes the forces acting on the company that presents both opportunities and threats that must be proactively dealt with, B) specific tasks and responsibilities to find the best action plans to those opportunities and threats, C) deadline for specific actions to be taken, D) the sales and profit implications of these actions, E) your real world limitations in implementing your options E) the selection of the best game plan after your options have been considered.
But the acid test is the post audit, which most small and mid sized companies do not perform. It is owning up to what you did right and wrong so that you will improve on your process as you move forward. It is not to find the culprit, but determine what you can learn to do better the next time. For example you may have said your growth is dependent on a new pricing schedule and that in fact was not as well received as hoped for. An early post audit will determine that and allow you to fix things. While waiting too long will lock in your poor decision and not allow you to change things until it’s too late.
In our next blog, we will discuss how to innovate and encourage your team to seek out opportunities. To see all articles in this series please go to http://optimal-mgt.com/blog
Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.