Don't you believe it ... Stick to your budget

When times are tough, surely it's just common sense to make sure your company or division keeps within its budget? Not necessarily. Sometimes sticking religiously to the budget can seriously damage your business...

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Last Updated: 31 Aug 2010

Missed opportunities. Let's say a partner in an accountancy firm develops a software package, which he realises he can sell to other firms. He pays £1,000 for an ad on the back page of the trade magazine and makes £6,000 as a result. Naturally, he wants to do it again. Maybe he won't make £6,000 this time, but he should make something, all the same. So he asks his partners for another £1,000. The response of these financial gurus? 'We can't do that, we've spent the marketing budget for the year.' Now in what economic climate is this rational behaviour? Not in the recession of 1991, or in the worse one of 1982. Not even in the Great Depression of the 1930s would this have made sense, but it happens all the time. Look at the opportunity before you look at the budget, rather than the other way around.

Increased outgoings. Sticking within budget can also make you spend more. When I was commercial director of a marketing consultancy, we built the business on advance payments from clients using up their budgets. Every autumn, we would bank several hundred thousand pounds from clients whose budgets had to be spent by Christmas, or not at all. The clients were large pharmaceutical firms. I don't think they ever realised that they had got into investment banking by mistake.

Your budget is a foundation, not a straitjacket. You need it to prove that you have a profitable baseline for the business, but you must not let it constrain you from taking profitable action.

Alastair Dryburgh is head of Akenhurst Consultants - www.akenhurst.com

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