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Budgeting for Profit Improvement

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Budgeting can be an effective tool for profit improvement if done properly.  I learned that lesson when I started my career in Finance with General Foods, makers of Maxwell House Coffee and Jell-O Desserts.

We didn’t even call the annual budget a “budget,” we called it the “Operating Plan” and that tells you something about the whole improvement mentality, and the emphasis on planning for improvement.  This is especially so as this Operating Plan was required to be the first year of a five-year Strategic Plan, furthering the emphasis on improved results over time.

The Operating Plan was the outcome of some very spirited negotiations between each Divisional General Manager and the heads of Marketing, Sales, Operations and Engineering.    The financial function facilitated this whole process, which included pulling together an objective estimate of how the current fiscal year was likely to end up, since the Operating Plan was created in October, before the December year-end.   If the Operating Plan called for improved year-over-year results, it was grounded in real actions that were needed to make it happen.

As a consultant to small and mid-sized clients, I find I am having a chance to help them implement some of these best practices.  What I am often seeing is the budget is something that is mechanically put together by the controller or bookkeeper in January, by taking the past year actual results, and applying an across-the-board percentage increase.  Creating the budget this way is missing a big opportunity to engage all of the managers in a dialogue that can establish a shared vision for improved results as well as greater accountability for making it happen.

 

 

 

 

 

 

 

 

 

 

Key to Small Business Profitability Improvement: “Create a Budget and Use it Effectively”

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On July 9th, I conducted a seminar – Small Business Profitability Makeover – for 25 exhibitors at the Fancy Food Show, in Washington, DC. Attendees learned how to:

  • refine their pricing tactics by checking out the competition
  • determine which product lines are profitable and which aren’t
  • save on purchasing by adopting tactics used by larger companies
  • determine when you need outside experts to cut costs, such as insurance, rent and utilities
  • tighten up their accounts payable process to improve cash flow
  • create an annual budget and use it effectively
  • manage expenses through accountability

When asked which item they thought had the most potential for their business, the majority voted for: “create an annual budget and use it effectively.”   Determining product line profitability, and saving on purchasing also were seen as valuable techniques by the Fancy Food Show attendees.

Does any of this sound like it would be valuable in helping you improve your business? Much of this same material is now available on line as an archived webinar at the Ventureneer website.