Budgets, forecasts, & keeping up with reality
We all tend to get the idea of what a budget is. It’s intuitive. You have a plan, you translate it financially, and then you measure your execution against it.
Often the confusion comes with what to do with the plan when it comes up against reality. The truth is that revenue targets will be missed. Landlords will increase rent. Your development time will exceed your best estimates.
So do we change the plan? The short answer is that there isn’t a short answer. Traditionally, the budget was a plan made at the beginning of the year and you are judged against that plan for the rest of the year (despite very real and unavoidable challenges). What smart managers do is pivot and formulate a better plan. We can call it a forecast. We can call it a budget update. But really what’s more important than hitting OpEx numbers is being able to roll with the punches. We know your arena changes so shouldn’t you be judged on how well you adapt? The consistency of your victories?
We encourage businesses to stay honest and real about what they can achieve. However, what we really want to encourage is short-run dexterity and long-run focus. Because maybe your firm’s future is bigger than a budget.