Improving the Budgeting Process at Fast Growing Entrepreneurial and Technology Businesses

Improving the Budgeting Process at Fast Growing Entrepreneurial and Technology Businesses

Formalized budgets, if properly prepared and used, can be an effective method for coordinating business plans, allocating resources, evaluating performance and controlling the organization. A well-developed budget can also work as a way of generating commitment and motivation for your employees.

In my experience, as a CEO & Founder of PicassoMio.com, a fast growing e-commerce business and as an adviser to several small businesses, I noticed that fast-growing entrepreneurial business have a tendency to ignore or mismanage a very important tool, the budget. Without a doubt, this managerial tool is of particularly relevance to such companies due to the speed at which they are growing and experiencing critical transitions.

Here are some suggestions on how fast growing or rapidly evolving business can better manage their budgeting process:

Reality Check

A large number of entrepreneurial and technology businesses tend to be extremely ambitious. If you repeatedly notice a systematic bias in your budgets of being excessively high, the budgeting process should be evaluated. A budget that is realistic but stretches is probably the key to success in creating a usable budget and generating credibility and motivation, in terms of your staff.

Rolling Stones

Traditionally, the budgets are prepared on a yearly basis. While an annual budget may be applicable to a stable business, it may be irrelevant for your company, if it is growing, in double digits or evolving at an Internet pace. Consider adopting rolling budgets that are continuously updated, on a quarterly basis, or in light of major changes in the internal and external environments.

Democracy

Entrepreneurial and technology business are notorious for top-down budgets, where the senior managers come up with the budgets and shove them down the throats of others. It may be worthwhile to have a more participatory approach for several reasons. Firstly, developing consensus amongst your staff will enable you to generate a motivated and consistent effort when it comes to implementing the budget. Additionally, an organization-wide, participatory approach would enable generation of information from across the company, which may not be available otherwise.

Other Things Matter

Incorporation of relevant non-financial measures in your budgeting process are important not only as part of the organizational plan, but also from the perspective of giving the correct signal, within the organization. For example, if you are an Internet-related business, incorporating traffic, registered users, page views, within the formalized budget, is a key element to your longer-term success.

Check the Rear-view Mirror

Fast-growing and fast-evolving businesses often do not evaluate the past adequately. Looking at the past will give you the opportunity to evaluate your success (or failure), systematic bias and possible opportunities that the company may have missed. Taking advantage of the rear-view mirror, while the organization is focused on the great big road ahead is not a bad idea.


Nitty-Gritty

I have often seen at other organizations and actually experienced at my prior start-up that when you are growing at a lighting speed, critical details, such as coordination, assessment and review of budgets are sidetracked, exposing the companies’ to rather obvious dangers. The establishment of a system that enables the company to have well-determined mechanics around the budgets is critical thttp://www.blogger.com/img/gl.link.gifo its stability and success.

Suggested Further Reading:

“Managerial Accounting for Business Decisions” by Ray Procter (Financial Times/Prentice Hall)

December 20, 2007

Allan Majotra
Sloan Fellow, London Business School
Non-executive Chair, PicassoMio.com