Here in Australia the tax year ends 30 June. The retailers are into a frenzy of EOFY sales and every road that can be repaired is being dug up to use up unallocated funds.
The Japanese have a word for it. Mura - unevenness. This unevenness is costing the economy billions. Because unevenness causes all sorts of other waste - over production, errors, excess inventories. The list goes on. This is even more extreme than the "end of the month" syndrome.
Much of this is of our own making. June 30th is just the end of the tax year. That's all. Except for tax treatment it is a completely artificial deadline.
Deloitte recently released their latest paper on red tape focused on companies' own rules entitled "Get out of your own way" and I'd certainly include the budgeting and financial reporting that businesses do as part of this.
Once the financial year end is out of the way and your CFO or Financial controller has come back from their nervous breakdown, do yourself a favour and review your whole process to get rid of the waste and frustrations of a process not designed for purpose.
I'd review the process not just on the "budgeting" or "reporting" bits but on the whole Joined Up process of strategic management. Very few businesses can afford to wait for three years for a new strategy and need to review this more frequently, quite possibly more frequently than annually. And if that's even partly true, then the annual budget doesn't fit any more or at the very least isn't enough.
In reviewing the process some obvious questions to ask are:
- Timing. When would it be most logical to have the company financial year and how closely should it be linked to the planning cycle?
- Frequency. Why only plan and forecast annually?
- Purpose. What is the purpose of the budgeting process? For whom? if its for the accounts department - you've got a problem.
- Accountability. How do you intend to get real accountability? Hint: most budgets don't do this.
- Decisions. What real-time information do you need to run the business?
- Clarity How to communicate progress against real (not artificial) goals
Some solutions businesses are now applying include:
- Have trailing results and a rolling forecast. Don't have a massive budgeting process but review performance every month INCUDING a forward 12 month view. The power of a trailing 12 months is that seasonality is always allowed for and a forward looking 12 months then only one month is being introduced - all the others are just being reviewed for any obvious changes. For more on this TEC speaker Nick Setchell has some fantastic tools
- Look at cash movements. The Profit and Loss statement will need modification if you are really going to run your business effectively. Alan Miltz, another great TEC speaker, reminds us that in particular working capital movements are essential to monitor and plan and operational strategies can have a big impact on the cash generating abilities of the business
- Use Visual Management - Graphs and Trends. The CEO may have got used to a spreadsheet full of numbers, but it doesn't mean the executive team have. If you don't show it graphically, with the distortions taken out, your team won't see the same picture as you. If currently graphs show a sawtooth pictures of sales and profits, smooth it out by using a rolling 3 month or accruing some expenses.
- Focus Accountability for tactical activities on the shorter term. Consider quarterly targets; usually 12 months is just too far away. If you wish to share some form of self funded bonus then this also can be done more effectively on a quarterly basis with the carrot dangled a little close to the nose of the sales teams - and less temptation to ease up.
- Avoid driving by the rear view mirror. Financial results are an outcome. The business is driven from inputs - so ensure as a management team these make up the bulk of the indicators you drive in the business.
