Don't panic. Setting a budget is not rocket science, says Chris Jackson, head of the finance and management faculty at the Institute of Chartered Accountants. 'It's really just putting numbers to a business plan.'
Put strategy first. The plan flows from the strategy, which is broken down to goals and targets for each bit of the business. 'You should brainstorm the optimal way to meet your objectives without attaching any pound notes to begin with,' says accountant and trainer Anne Hawkins (www.leanmeansbeans.com). 'If you put the money first, you miss a huge chance for blue-sky thinking.'
Forget last year. It might be a useful reference point, but cutting the pie in the same proportions each year is a recipe for maintaining the status quo. 'You need to be continually questioning the shape of the business,' says Hawkins.
Devolve and challenge. If you want people to meet their budget, they need to have ownership. Every manager should ask all those who spend money how much they need, and to justify it. You'll end up with departmental and company budgets that everyone has signed up to.
Raise the bar. Budgets are about setting stretch targets as well as allocating resources, says Jackson. 'It's down to the judgment of management to reconcile the tension between what's ambitious and what's realistic.'
Size doesn't matter. Too often, the bigger your budget, the more important you are. Promote a cultural shift so that brownie points are gained for doing more with less. 'You want everyone to think about the best way to allocate resources rather than getting the biggest slice,' says Hawkins.
Think downside. Risk analysis should go hand-in-hand with budget management. Every department should state the assumptions on which their bid is made, and consider threats and opportunities. 'The more transparency and clarity the better,' says Jackson. Building contingency into the budget is fine, but ensure it's done consistently; don't add a margin at every layer.
Keep on checking. A budget is not to be put away in a drawer for 12 months. Review where you are against the budget as regularly as possible, and take prompt action to reset budgets and reallocate resources when you need to. Effective budget management helps an organisation to meet its strategic objectives without a financial crisis.
Do say: 'Let's look at how we can improve on last year's performance while freeing funding for other parts of the business.'
Don't say: 'Anyone in this department who hasn't spent every penny of their budget by April 5 will be shot.'