Budget 2013: What Should We Do Now?

This article was originally written for Astron Technologies’ blog, Astronology.

Worse off or better off?  Adding jobs or losing jobs?  Growth or recession?  If you read the news today, and especially the campaign ads from a contentious 2012 election, it is hard to make heads or tails of what to expect next year.  Understanding the dynamics of the markets we compete in is critical to building a budget for 2013.  What’s a company to do?

Start with the following steps to prepare your budget for 2013: understand market conditions, set your growth objectives, align your expenses to your objectives, and manage your plan.

Understand Market Conditions

economic trendsIn its latest economic forecast this month, the Fed forecasts growth in 2013 of 2.5%-3.5% – an improvement over the 1.7%-2% expected for 2012.  However, there is big uncertainty based on the election outcome, as well as huge tax increases and expense cuts scheduled to take effect in January 2013.  Congress is likely to make a deal to moderate the impacts of these tax and spending changes, but in this heated political climate, it is hard to bank on it.  2013 will likely be a slight improvement over 2012, but you should review the general trends for your industry as and the developments in congress closely.

Set Your Growth Objectives

Given the uncertain and moderate growth expected for next year, it is important to understand how you would like to position your business in 2013?  Do you want to:

make your growth plan

  • Prepare for contraction in your business?
  • Hunker down, keep the boat steady, and ride out the waves?
  • Invest for moderate growth?
  • Aggressively take market share from others while the market is destabilized?

Your objective obviously depends heavily on your cash position and ability to invest.  However, one thing I have learned in the current economic downturn is that regardless of your actions,  there will be companies that grow despite poor market conditions.  They grow by increasing market share at the expense of weaker or less aggressive companies.  Are you going to be the predator or the prey?  I would encourage everyone to invest – for moderate growth at a minimum.

Align Your Expenses to Your Objectives

track your expensesI know it is cliche, but to achieve your goals you have to have the right team in place.  In most companies, payroll is the single largest expense, but your people are also one of your most strategic assets.  Start your budget process by building staffing plans to identify the type and quantity of people needed to meet your growth objectives.

When investing in moderate or aggressive growth, start with your sales and marketing areas.  Those functions generate the leads that drive income.  Next, move to production employees – those directly responsible for delivering the product or service that you offer.  If you choose to underinvest in sales, marketing or production, you will likely fail to deliver your message to prospective customers or deliver poor quality to the clients you have.  Either outcome will hurt your business in the short and long term.

Once your core revenue generating staffing plans are in place, work the rest of your expenses (general and administrative payroll as well as all other operating expenses) to be in line with your financial objectives.  I would encourage you to be as financially conservative as you can be given the market uncertainties.  Get creative in conserving in these expense categories.  Plan for your worst-case income scenarios and reap rewards when you beat your plan.

Manage Your Plan

For a budget to be effective, it should be a living document that you visit regularly (monthly or quarterly) to assess the health of your business.  Check your assumptions on key metrics that affect your planned results.

monitor your metrics

Metrics might include number of leads, closed deals as a percentage of leads, delivered products or services, and number of resources required to achieve your results.  If any of your assumptions are significantly off-base, revisit your plan and adjust your plan as necessary.
A simple, one-page scorecard that aligns to your budgeted sales objectives, key functional performance, and expense levels is helpful to keep business leaders focused on objectives and results.  Investing time during your budgeting process to create a scorecard that aligns with your plan can be business-changing if you are not doing it today.  Take the time and think about the metrics that truly impact your business, track them religiously, and make them visible as broadly as possible within your business.

Key Take-Aways

So, economically-speaking, 2013 is likely to be similar to 2012.  However, there are enough signs that indicate the U.S. is at the beginning of a slow upward climb.  My challenge to you is to build a budget that plans for growth and prepares your business to climb at a faster rate than your competitors. Make 2013 the year you laid the foundations for success and the expectations of growth – regardless of market conditions.  Be a predator!

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