Spreadsheets, budgets and Profits & Losses are for management, accountants and finance departments. As non-financial managers, you need to focus on your team and deliverables, and let the experts worry about the numbers. Unfortunately, this couldn’t be further from the truth.
Profit margins are shrinking and companies have to find innovative ways to stay afloat. This makes budgets and profit and loss everybody’s problem – including yours!
Knowing basic accounting is no longer a ‘nice to have’ asset – it’s a must have. The ability to run your team within a budget and being able to justify your spend, will actually determine your team’s survival in the long term. So what does knowing basic accounting look like?
The first thing to do is get an understanding of the key figures that are important to your business and stakeholders. Obviously it’s profit – but what specifically? What are top line and bottom line costs that the company is monitoring?
Let’s take a real life scenario. As a department head you are probably required to submit annual strategic plans and bi–annual reviews.
If you are in the process of developing your department’s strategic plan, then apart from annual business goals or KPIs you will need the following, if you want the plan to be approved:-
Revenue Projections – with projected growth that is based on the annual business goals and team KPIs.
Once you have all these details in place, you will need to play devil’s advocate with your budget. What are your department deliverables? What are the goals? What services do you offer to the organisation?
Play out a couple of ‘what if’ scenarios so that when the board queries your numbers, you have the data and analytics to back it up. A famous question that CEO’s like to ask managers of sales teams is – “If I double your budget can you double your sales projections?”
If a similar question were posed to you, what would your answer be? Once you have the analytics to back up your department budget, then it’s a matter of priorities.
What is a ‘must have’ expenditure and what is a ‘nice to have’?
Know you are almost ready. The next step is to use a simple budgeting tool (such as Excel) to present your projections, numbers and goals in a friendly manner – via charts and graphs.
Of course it is important to note that plans are not iron clad. Your budget will, from time to time, have variances. But planning will ensure that these variances are kept to a minimum within your department, and even when they do occur, they do not adversely affect the bottom line of the company.
In case you still aren’t convinced on the importance of budgeting practices as a non – financial manager; let’s look at an example close to home. Stevi Lowmass, the Founder of The Camel Soap Factory, started just six years ago from the shed of her Dubai villa. A first time entrepreneur and previously General Manager of a software company, Stevi quickly learnt the challenges of a owning a SME – especially cost vs. benefit.
This is just one example, budgeting can come in handy in any situation, even in personal financial management.
If you would like some in depth knowledge, join us at ISM for the Finance for Non Financial Managers workshop. Register today!