Part 3 of a 5 Part Series on Budgeting and Finance for the Non-Financial Manager
The chart at the right summarizes 10 critical factors to help you prepare your budget presentation.
- Budgeting is a monetary representation of your departmental goals. By making the connection between your spend and the company achieving its goals, it’s harder to cut funds because it impacts the company achieving its goals.
- Return on Investment (ROI) calculations illustrate the payback period for individual projects. Compare ROI with company goals to rank and market initiatives by their impact on the bottom line.
- For larger projects under consideration (such as expanding into a new product line), ensure gains in market share do not consume a disproportionate amount of cash from the company (i.e., more inventory, extended duration of accounts receivable, increased complexity, etc.) This philosophy is called cash efficiency and should actually be applied to your current product lines – where are you getting the biggest bang for your investment dollars?
- Some projects are more about value-add than ROI. Tie that value-add into how it will help the company achieve its goals.
- ALWAYS prioritize your initiatives then be prepared to scrap the project at the bottom of your list. If you don’t, senior management typically goes after those with the highest price tag. Control how your funds are cut.
- Find out what cuts were made to other departments that may result in your ability to cut spend in your budget.
- Demonstrate to executive management if there a dollar impact to the Company for not implementing a project or if you can push the spend to later in the year when company finances are better.
- Companies are worried about cash flow or having enough credit to weather the downturn in sales, thus you need to link your spend to how it’s going to improve your company’s profitability.
- Enlisting other department heads to champion your spend can be tough right now because everyone is scraping for dollars, but it’s to your benefit to have others tout your initiatives.
- You want ANYONE who has ANYTHING to do with finance to thoroughly understand your spend so they can defend your budget if you’re not in the room.
Next week we’ll go into much more detail on how to calculate Return on Investment (ROI) for projects under consideration.
1.) From Leadership in the Era of Economic Uncertainty by Ram Charan, 2009.