Your leadership team has finally agreed on a budget for next year. You are close, but it is not quite time to declare victory. Communicating and “selling” the budget are an essential part of the process. The budget probably requires board approval which is of course important. But there are many people in the organization who will make the budget happen. Teams engage more powerfully when they understand how their contribution fits into the puzzle. If you are sitting at the top of a business, you have a unique view of the big picture. While confidentiality is important, a budget roadshow is a great engagement tool. Take the time to explain the entire budget to the extended leadership team and answer their questions. This will build credibility for you and the budget.
Another important reason to take the time to document the budget story is to preserve the strategy, assumptions, deliverables, and accountability within. Six months from now, when things don’t play out according to plan, it is helpful to recall your thought process. Unfortunately, most finance leaders have experienced a colleague’s revisionist history - try to prevent it.
And, documenting the budget story makes it real and locks in accountability. The budget tool or Excel model includes the dates and benefits from technology implementations or new product introductions but only the finance team can see those deliverables. Put it all on paper and share the plan. Seeing it in writing locks in commitment and gets the team focused.
Most businesspeople are proficient at deck writing, so this article won’t cover the basic comparative P&Ls and balance sheets that you will include. But there are some exhibits that help to drive understanding of nuances in the budget, those morsels of information that you have in your head because you saw the whole thing come together.
1. What you have to believe - There are underlying beliefs in any plan that merit clear articulation. For example, when I leave the house fifteen minutes before a doctor’s appointment, I have to believe that my car will start, and I won’t be involved in an accident. Perhaps an oversimplification but you get the point. And just like driving to work, it is good to have a Plan B for your budget. If you have to believe that we won’t experience another COVID lockdown to achieve your budget, what happens if we do?
2. Key assumptions - These are the assumptions, typically mathematical, that provide consistency across the budget. Inflation rates, interest rates, commodity prices, and so on. If your tools are effective and allow multiple scenarios, provide sensitivities. For example, for every 1% increase in the price of steel, the budget impact is $X.
3. Key Deliverables – This is a list of the key action items in the budget that must be executed on time to make the numbers. For example, ten new salespeople need to be hired by March 31. This puts on paper that the commercial team and the recruiters in the HR organization have a handshake agreement for execution. Put a name next to each deliverable.
4. Investments – Summarizing the total capital investment, by strategic initiative, locks it in. Helping the team see that you landed on a list of carefully prioritized projects helps to build strategic alignment and lights a fire under those responsible.
5. Headcount – A chart with headcount, by organization, by quarter may seem obvious but it is sometimes omitted. Compensation is a significant line item in most budgets and is most easily tracked by measuring headcount and open positions. Also, it is helpful to highlight a handful of anticipated key hires. In other words, hiring a new sales manager is critical to success.
6. Risks and Opportunities – Bold leaders take on challenges to get a budget done. Sometimes a leader accepts a challenge without a clear path to achievement. That challenge is a risk, and the owner will always appreciate a little credit as such. On the other side of the ledger are items that might go your way, for example, a long-shot deal might close generating a boost in revenue that is not in the budget. Or something more controllable like postponing an expensive hire. Risks and opportunities in balance are solid footing for a budget. I like a few extra opportunities because let’s face it, stuff happens.
Once you have the presentation, go on a roadshow with your team. It is a good development experience for them to answer a barrage of questions. Most leaders will have participated in the process and will appreciate the courtesy of seeing how the budget came together. If you have done your job spreading the pain around, your colleagues will see that too. Remember, a finance leader must always be credible and fair. When it is obvious that everyone has a fairly equal challenge, the team will stop complaining and start digging.