Somedays it feels like all we do is parse semantics, doesn’t it?
Budgeting, planning, it is all the same thing, right? Well, no – not really. Yes, far too often they are used interchangeably, but the truth is that planning is far more important than budgeting. Budgeting is really about allocating your resources. Planning identifies what you want to accomplish and how your resources can help you make that happen.
This is why the distinction is important. I am starting to help clients plan for the next year and part of that is looking at what we have accomplished through today. It is part looking at the numbers and part looking at the strategy and seeing if we are off target.
To me, there is nothing worse than not being able to answer the question, “How did we get here?” Or worse, hearing the glib answer, “We performed well (poorly).” Duh.
What was the plan? Did we think we were going to break into a new market? Did we succeed? What is the acquisition cost per new customer? Are we getting repeat business? Can we grow in that are? At what cost?
There is nothing harder to do than listen to someone say how profits are holding steady, while knowing that it is because money is not being spent on carrying out the plan. Of course you have profit, we are not spending money on project X, which, by the way, two years ago we all agreed that it was going to be the flagship product within 5 years. Why did the company plan to allocate thousands of dollars on advertising if we don’t want to spend it?
These are hard questions to listen to, much less respond. No one likes having their parade rained upon, and yet, well, there it is. The plan drives how resources are acquired and spent, otherwise you just have a budget.
That isn’t to say budgeting isn’t a useful tool, it is. But my experience has been, budgets are typically devoid of planning. We spend money in that area last year, lets continue to spend money in that area. We generated revenues selling widgets last year, lets budget to generate 5% more in sales. There is no plan, no vision, nothing to be held accountable to until it is too late.
I do lots of budgeting for non-profits and the most fun I have is helping them rethink the budget process into the planning process. We start by looking at the big picture and then start asking how we get there. Then, once we get consensus, we start putting numbers to actions. It is extremely rewarding to see these professionals see the results and understand that there is a reason for spending money, other than the satisfaction of having money to spend.
So take time, do planning. Think about where you want to be and how you want to get there and THEN allocate resources. You will get tremendous benefits from it, mostly from thinking about how you are going to get from A to B. If you need help, let me know, I am always open to helping companies and non-profits think about their plans and how they translate into action and money.