Budgeting: We're doing it all wrong.

4 April 2022

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A budget is the carrot, and very quickly becomes the stick.

It motivates you because you want the number. It's dangled out in front. We run for it and judge ourselves against it.

Then you miss the target you set. And you hit yourself with the budget stick.

Or, you hit your target. You briefly pat yourself on the back, and then move on. You reset the target and wait for the next time you get to hit yourself with the budget stick.

Your budget is useful, sure. But it's not helpful.

I think we need to change how we do business budgeting.

Business budgets are about creating permission to spend, not preventing a splurge.

Yet, all our lives they've been about control, accountability and keeping on track. Accountants and business coaches use them to review performance and create accountability. They're a tool for benchmarking, tracking trends, and deciding whether you're doing "good" or "bad".

This is useful, sure. It highlights whether you're on track or not.

But it's not helpful. It doesn't show you how to get where you need to be.

Here's what I think...

They need to be connected to the purpose of your business. Your Why (thanks Simon). For Convex, this is simplifying the technical by highlighting blind spots.

Then it's about the Critical Pillars in your business. These are the things which push you towards your why. For Convex, some of these pillars are:

  1. Our People: How we train, upskill and look after them
  2. Our Technology: How we see the insights into businesses in real time
  3. Our Customers: How we make them better business owners, and attract more of the right type of customer)

Then it's about unpacking the Success Criteria under each of the Pillars. So, for Our People, how do we know when we're looking after them well? It could be the training we deliver, how happy they are, staff turnover, productivity changes. It could be something else. By understanding what we're aiming for, we're better able to reflect at the end of the quarter.

Finally, how are the different Pillars connected to each other. For Convex, our Technology pillar should alert us when a customer is struggling and needs help, which in turn informs how we train our team. Nothing sits in isolation.

Budgeting hasn't changed since at least 1984. And it needs to.

The Harvard Business Review described budgeting as "setting acceptable targets for revenue and expenses, to increase the likelihood that targets will be reached". They said it's about planning, and control.

Yuck.

Instead, make it about permission to spend, and a tool to help you execute on business strategy.

So, where to next?

 Checkout the free template we've put together. It gives you instructions on how to think about your budget, an example to work from (our budget for Convex), and a template to get you going. Download it here now!

HM v2

for more help feel free to reach out. Get in touch with Hamish Mexted