Of the hundreds of CEO's I have coached over the years, we found that
less than 3% of them made it a discipline to do an annual budget. That Was The
Good News. BUT after an Estrada Strategies coaching session, we discovered
their budget was not a true operational budget that could provide each
department manager with a set of clear financial goals.
First let me tell you that 100% of the fortune 1000 companies do annual
budgets. A common reason smaller business owners give for not doing a budget:
"I don't know how". Sound familiar? Numerous business owners have no
financial background and cannot read their own profit & loss, balance sheet
or cash flow reports. A huge problem, because understanding and managing your
finances is critical to the short term and long term survival of the business.
There is hope and it lays within this simple statement, "Don't do it
Another common response is:
"I have never needed a budget before." OK...time for a useful story -
but don't take as a sales pitch for Estrada Strategies.
I once had a client whose 150Million Dollar business had never, in
25 years, produced a financial budget. The CEO was proud to tell us that he
never looked at his own financials. Weird? No. Typical? Yes. However, late in
2008 the CEO sought help to set up a budget for the New Year. His company was
very IT dependent. The company needed new servers and computers, but were
strapped for cash.
Estrada to the rescue! Even in
the early stages of the budget process, significant opportunities for overhead
reduction were realized. Cell phones and gas cards exceeded $20,000 per month.
As we reviewed the historical financials, line by line, and were able to reduce
another $35,000 of monthly expenses that could be cut with very little impact
to operations or employee morale.
As a result, they had money for
new computers, they built liquidity on the balance sheet and managed 2009 with
a much higher degree of certainty and confidence. A fantasy story?
So, what is the point of this article? Doing an annual financial
budget and managing from that budget is a critical "Discipline" for
every business, regardless of size. And if you are honest enough to admit that
you do not know how to create a budget and manage your business with one, then
you are on the road to removing the veil that's been keeping you from seeing
the financial indicators that drive your company's overall health and
performance. Not to sound negative...but for you who would prefer to operate
your business with your eyes closed (so-to-speak), try this: Get In Your Car,
drive it on the freeway at 90mph and close your eyes for 3 minutes. "Why
would I do that" you say. Excuse me for the arrogance, but if you run your
company that way...why not drive that way, you dare-devil you."
Allow me to end on a
positive note. Your business can be healthy in a down economy all
because you are willing to make the commitment and investment to make it so.
Want Help? I'm available.