Don’t be Overly Focused on Your Budget

Budgets reflect a monetization of our plans for the year, which is great. However, they largely become obsolete after the first month of the fiscal year. By that time, plans have changed or are unfolding differently than we had anticipated during the three months of budget planning that led up to the start of the fiscal year.

𝐈𝐟 𝐲𝐨𝐮 𝐫𝐞𝐚𝐥𝐥𝐲 𝐰𝐚𝐧𝐭 𝐭𝐨 𝐮𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝 𝐡𝐨𝐰 𝐲𝐨𝐮𝐫 𝐨𝐫𝐠𝐚𝐧𝐢𝐳𝐚𝐭𝐢𝐨𝐧 𝐢𝐬 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐢𝐧𝐠 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥𝐥𝐲 𝐚𝐧𝐝 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮𝐫 𝐩𝐫𝐢𝐨𝐫𝐢𝐭𝐢𝐞𝐬 𝐚𝐫𝐞 𝐦𝐚𝐧𝐢𝐟𝐞𝐬𝐭𝐢𝐧𝐠 𝐭𝐡𝐞𝐦𝐬𝐞𝐥𝐯𝐞𝐬, 𝐥𝐨𝐨𝐤 𝐧𝐨𝐭 𝐚𝐭 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐞𝐱𝐩𝐞𝐧𝐬𝐞𝐬 𝐚𝐧𝐝 𝐫𝐞𝐯𝐞𝐧𝐮𝐞 𝐜𝐨𝐦𝐩𝐚𝐫𝐞𝐝 𝐭𝐨 𝐛𝐮𝐝𝐠𝐞𝐭, 𝐛𝐮𝐭 𝐜𝐨𝐦𝐩𝐚𝐫𝐞𝐝 𝐭𝐨 𝐥𝐚𝐬𝐭 𝐲𝐞𝐚𝐫 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐬𝐚𝐦𝐞 𝐭𝐢𝐦𝐞 𝐩𝐞𝐫𝐢𝐨𝐝.

I am always amazed at how many organizations don't even include a column in their financial reports for the previous fiscal year's YTD expenses and revenue. This should be accompanied by a column that shows the percentage increase or decrease compared to last year.  𝐌𝐨𝐬𝐭 𝐨𝐫𝐠𝐚𝐧𝐢𝐳𝐚𝐭𝐢𝐨𝐧𝐬 𝐚𝐫𝐞 (𝐨𝐯𝐞𝐫𝐥𝐲) 𝐟𝐨𝐜𝐮𝐬𝐞𝐝 𝐨𝐧 𝐡𝐨𝐰 𝐭𝐡𝐞𝐲 𝐚𝐫𝐞 𝐝𝐨𝐢𝐧𝐠 𝐜𝐨𝐦𝐩𝐚𝐫𝐞𝐝 𝐭𝐨 𝐛𝐮𝐝𝐠𝐞𝐭.

The real measure of change, whether it be positive or negative, is how you are spending differently compared to last year. Ask yourself the following:

• Where is spending up more than 5% compared to last year? Were these increases planned and a result of strategic decisions? Likewise, where it is down compared to last year and why?

• What is happening with revenue compared to the same time last year? Are certain categories performing better than last year, or are they down? Why?

In both cases, ask yourself if changes reflect the start of a trend.

If CEO's start to take a look at this year's financial performance compared to last year, they will better understand how their organization is changing and why. They can steer conversations with their boards in a more financially strategic manner, as well.

𝐈𝐟 𝐲𝐨𝐮 𝐨𝐧𝐥𝐲 𝐜𝐨𝐦𝐩𝐚𝐫𝐞 𝐲𝐨𝐮𝐫 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐞𝐱𝐩𝐞𝐧𝐬𝐞𝐬 𝐚𝐧𝐝 𝐫𝐞𝐯𝐞𝐧𝐮𝐞 𝐭𝐨 𝐛𝐮𝐝𝐠𝐞𝐭, 𝐲𝐨𝐮 𝐚𝐫𝐞 𝐨𝐧𝐥𝐲 𝐥𝐞𝐚𝐫𝐧𝐢𝐧𝐠 𝐡𝐨𝐰 𝐰𝐞𝐥𝐥 𝐲𝐨𝐮 𝐩𝐥𝐚𝐧𝐧𝐞𝐝 𝐚𝐧𝐝/𝐨𝐫 𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐝𝐨𝐥𝐥𝐚𝐫 𝐚𝐦𝐨𝐮𝐧𝐭𝐬 𝐟𝐨𝐫 𝐭𝐡𝐨𝐬𝐞 𝐩𝐥𝐚𝐧𝐬, 𝐧𝐨𝐭 𝐡𝐨𝐰 𝐲𝐨𝐮𝐫 𝐨𝐫𝐠𝐚𝐧𝐢𝐳𝐚𝐭𝐢𝐨𝐧 𝐢𝐬 𝐜𝐡𝐚𝐧𝐠𝐢𝐧𝐠 𝐚𝐧𝐝 𝐰𝐡𝐲.