Budgeting

Every business has a budget; how you approach it and then manage it, can vary according to the set up of your organisation. Many years ago, the word budget meant ‘pouch’ or ‘purse’. Translate that into the 21st-century and it equates to ‘what’s in the purse’, or how much money do you have to spend.

The size of your business will dictate how you allocate your budget, but the principles for any business will always be the same. What money do you have to spend and where do you need to spend it? A good place to start for any established business is to look at your budget for the previous year and its allocations, the activity it allowed and the results it produced. Hindsight is a wonderful thing and that is exactly what your previous year’s budget will afford you. That said, every year brings different challenges, changes to the economy and how businesses operate, but this is a good starting point.

What local factors influence your budget?

Any business that has a catchment area for its customer base has to look closely at what is happening in the immediate vicinity. Have there been economic factors that have affected your local area and if so, what budgeting principles do you need to apply to either meet demand or capitalise on your potential? To use car retailers as an example, has your local area just introduced a ULEZ zone? If so you may want to direct your budget to maximise on the opportunities that these changes will bring. You should also consider how the local economic status of your area will impact on household spending and subsequently, how that may affect your business if you do not factor this into your budget.

What gaps do you have in your business?

Before setting a budget it is important to analyse your previous year’s performance and look at areas where there was underperformance and whether budgeting constraints played a part in this activity. Could it be that you need to focus more resources at recruiting, marketing or products and services to boost performance? In areas where performance was high you need to analyse whether the budget you set performed in regards to ROI and whether overbudgeting produced high performing figures, but with a low ROI. Could you cut your budget, maintain performance but improve on your ROI?

Budgeting considerations

When setting a budget it is very easy to look at the physical factors that will bring you a return. Products, services, marketing; all activities that should bring a business turnover. But what about your people? Do you examine productivity levels in your business? Do you feel that your employees are performing at their peak or is there a lack of energy and ability that is having an impact on the productivity levels of your business? Richard Branson once famously said “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.”

How can allocating budget to the development of people improve business?

Well trained employees are an essential ingredient in the success of any business. And yet many businesses see this as an area to cut when it comes to reigning in your yearly budget. But the effects of a well-trained, motivated and engaged workforce are far-reaching. Firstly it improves employee productivity which will ultimately have an impact on your bottom line. Secondly, it improves employee retention. Did you know that failed hires and poor employee retention costs SMEs on average over £120,000 a year? Businesses employing up to 250 people are losing 14% of their staff each year, and 39% of their new employees are leaving within six months.

Training your staff will not only boost their knowledge and skills, but it will also increase engagement and retention which in turn will give your business valuable skills and consistency. A well-trained management team with the right balance of soft skills will keep teams motivated and invested in their roles by creating a positive and stimulating work environment. 

Before setting your budget for the coming year, consider the positive effects a motivated and well-developed workforce can bring to your business. Improved productivity means more work is being achieved in less time and using fewer resources. Calculating the ROI on training is an effective means of establishing if, or how, you budget for this area and can produce some eye-opening results. Most studies into the ROI on middle management training sees returns of approximately 75%. When you take this down to training in handling telephone calls the results can be an eye-watering 300%. Which begs the question, can you afford not to be investing in your people?

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