A Southern California Guide to Budgeting
(Links provided for translation purposes)
Okay you SoCal surfrepreneurs consider this while you’re waiting for your Alchemy Hour; Mark McCormack, in his book, “What they don’t teach you in Harvard business School”, sites an interesting study. A group of Harvard business students were asked about their personal goals. As it turns out, only 3% had written goals, the other 97% had either unwritten or no goals. After 10 years, the group with written goals was earning 10 times more than the other 97%. So, even though this applies to individuals, I think it makes a good, if not compelling case to have goals for your business. In business lingo you can call that a budget.
But I can totally understand why you’d rather be locked in. For the most part, and I’ve been there, budgeting is a colossal waste of time and energy. As soon as you set one in place, you know exactly what is not going to happen. So what’s the point and how do you make this work for your business?
For that, you go to the sage, Jack Welch. In his book (sorry, another one), “Winning”, he recounts his effort to re-tool the budgeting process at GE. Typically, a budget is established, submitted to the powers, then you live in fear of the day at the end of the year when it is dragged out and your bonus is shredded because you couldn’t foretell the future. Or you got lucky, hoodwinked the boss with a low ball budget (aka: UPOD – under promise, over deliver), got your bonus, laughed all the way to the bank with nary a thought of how you really contributed to the success of the business. A culture of game playing, not winning takes hold.
Jack promotes the “stretch budget”. In this case, rather than the zero based budget where you start from scratch, your goal is to improve over the prior year and to beat your competition. Stretch budgeting harnesses your creative energy to find better ways to do what you did before and harnesses your competitive drive to beat the competition. These are the characteristics that a business needs to succeed.
So, for example, say you came up with a budget to grow 12% over last year. You only hit 6%. This would be a clear improvement, but still short of expectation. So management has an excuse to axe your bonus and everyone feels like they’ve failed no matter how much improvement was made or how hard they’ve worked. But if performance against your competition is a factor and your toughest competitor only was able to squeeze out a 3% growth rate in a tough economy, you’ve stomped them. In surf terms, it takes the quality of the swell into account in determining how sweet the ride. Now you’ve made budgeting something that is motivating and relevant, not just an exercise in chance.
So why is a hodad like me writing about something like this? Well, for one thing, B2B CFO®’s are sitting up at night reading these books and studies. We read, you surf, simple as that. We want to say relevant for our clients, not a gory parasite. Additionally, our partnership resources provide us with benchmark numbers so you can compare your business with the competition. Give one of us a call. It runs in our blood, kinda like surfing.