In business, you are either growing or dying. This is why most business owners and managers are incurable optimists. We believe that if we lay out a plan and the team follows our lead, we will win. As I type this article, I am watching a Sunday night NFL game and I am absolutely sure that the coach has done the same: he set the plan, the team will work the plan, and they will win.
The reality is, even the best well laid plans do not always come to fruition. Stuff happens. These unknowns are called Black Swans. No one could have predicted 911 or the impact of Covid-19. Does this mean that we should then leave everything to chance?
The reality is, even the best well laid plans do not always come to fruition. Stuff happens. These unknowns are called Black Swans.
A friend of mine has a successful excavating company. When I suggested he should begin the year with a budget, he sorrowfully looked at me and said, "Jobs get delayed, cancelled or new jobs spring up … how can I predict what will happen?" He is right, yet oh so wrong. How can you or anyone else on your team hit the bullseye if there is no target in sight?
Only by pushing the envelope can you compel a company to grow.
The power of reflection and planning
The budgeting process begins with reviewing what you did during the past three years, identifying anomalies that may have caused your numbers to be skewed, and then using this data to create a moving forward average. Once you have this, you can then predict (guess) where new business will come from based on past history, customer demand for new technology, and
Peter Janis is former CEO of Radial Engineering and owner of consulting firm Exit Plan.
potential areas of growth. The most important point here is that you will never be right. Get past it. Setting a budget is not about being right, it is about creating the financial mechanics that will synergize your team. If everyone knows that the sales forecast for the month is $500,000, and $450,000 has been shipped, the team will bust their behinds to get the last $50,000 out the door. Everyone wants to be part of a winning team! Setting a budget requires discipline.
Setting a budget is not about being right, it is about creating the financial mechanics that will synergize your team.
A yearly sales forecast is likely the most important document you can create. It sets monthly targets for your sales team, limits expenses for administration, and predicts profitability for the shareholders and the bank. In my world, I would break down the numbers by categories such as live sound, recording and installation, factor in new products in development, and then usually add on a 5% to 10% sales increase to push the team as hard as I could.
In my world, I would break down the numbers by categories such as live sound, recording and installation, factor in new products in development, and then usually add on a 5% to 10% sales increase to push the team as hard as I could.
The sales manager would concurrently do a separate budget where they would break down the sales by sales rep, major client, and distributor. This painstaking process took weeks, yet the outcome – a compromise between our two sets of numbers – enabled our administration team to plan raw part purchasing and production to plan the needed man-hours to build the widgets. If you are launching into completely unknown territory, then the best option is to create a best-case, worse-case, and most-probable-case.
Getting your head straight and your vision in alignment
In the early days, I would be overly optimistic and this often got me into trouble. Setting unrealistic goals only disheartens your team. Asking a salesperson to increase sales with a product line that is on its last legs makes no sense. The same applies to expecting sales for a product where the factory is unable to deliver. All this to say, you need to have the resources in place to get the job done. Best intentions are not a recipe for success.
I have to stop here for a moment to voice that the sales department is the most important department of any business. You can have the best administration, produce the best products, and have a crack installation team, but unless there are dollars coming in the door, you are doomed. Cash flow is the life blood of a business.
Every year, after the budget was approved and set into motion, I would then bring a BHAG to table for the year. BHAG is the acronym for (B) big (H) harry (A) audacious (G) goal. This could be the development of a new technology, a push into a new market, or even the launch of a new brand. I am a huge believer in creating buzz by getting everyone on the team juiced with a new opportunity. It does not always pan out, but unless you try, you have no way of achieving a new level of success.
I am a huge believer in creating buzz by getting everyone on the team juiced with a new opportunity. It does not always pan out, but unless you try, you have no way of achieving a new level of success.
One year I launched Primacoustic to get us into the acoustic market. A few years later, we acquired Reamp which placed the company as the leader in re-amplifying technology. We did the same when we launched a Bluetooth solution, forcing the company to learn the ins and outs of wireless technology.
Consider this too: BHAGs do not have to be sales-related; they can be moving to a better facility, breaking into a new market such as Asia, Africa or South America, or completely revamping one’s website. A BHAG is a major project undertaking that requires commitment both with time and funding. This takes discipline. Only by pushing the envelope can you compel a company to grow. And as they say, a company is either growing or it is dying. I prefer the growth curve.
