Making Budgets Work

Author: Private: David Hornaday , Core Catalysts Executive on Demand

Leadership and Accountability Drives Results.

During the year end period most companies are spending lots of resources to prepare sales forecasts, expense budgets, cash flow projections and production or manpower plans.  The best companies view this process as an integral part of their business plan for the upcoming year.  Others view it as a general guideline to follow.  A few even proceed through this effort superficially.  Assuming your firm is privately held, cash is king.  But does your firm establish the tools to manage to the budget or to maximize cash flow in your day to day operations?

Many firms use their budget as a measuring stick against financial performance.  They run the business and then look back at the previous month once the books close or at month end reports.  While that process is helpful for taking corrective steps in the future, it ignores the fact that those results could have been improved if they were managed in advance.  How can you do that?

When you established a monthly sales forecast, do you require that this is updated for the upcoming rolling quarter each month?  Is your sales team rewarded for performing to budget, including the accuracy of the forecast?  Do you track sales daily through the month?  What metrics do you use to identify changes in the business?  Backlog?  Open orders?  Fill rates?

Managing working capital proactively impacts your cash greatly.  Do you have a control on purchasing raw materials that are tied to production forecasts?  Are those production forecasts tied to updated sales forecasts?  Does this get to an SKU level?  Do you monitor your receivables weekly?  Is your manning/payroll in sync with activity levels?  Do you have a review on finished goods levels based on turnover targets?  How often are those updated?  Reviewed?

How do you control discretionary spending?  Do you just allow managers to spend their budgets or is there a review process prior to purchase?  Is that review done with a cross functional team?  With executive approval?  Managing spending based on need rather than based on budget will lead to a better focus on priorities and assist in aligning spending with volume.

Bottom line, the cliché of “what gets measured gets done” applies in all aspects of managing your cash flow.  Measure and control of these variables in advance will lead to much better results than adjusting after the fact.  It takes a strong commitment from leadership to drive this process and well-designed tools to execute.  Give those tools and measurements lots of consideration as you move through the budget process for 2020.


Author Dave Hornaday is a business strategist with the Executive on Demand program from Core Catalysts. Executive on Demand provides short-term C-Suite leaders resources for business transformation via interim, fractional or advisory leadership roles.