The countdown to Christmas is well underway. For many businesses, this is budget-setting season. I’m currently supporting several clients forming their New Year’s resolutions to sell more and spend less (a familiar story, I’m sure).
This type of work, alongside the financial modelling work that Craig Corporate does to help companies raise investment, got me thinking… What mistakes do businesses regularly make when financial planning for the future?
- Santa Claus often makes a difference:
December results are seldom as good as you expect. There’s a myriad of holiday season challenges which mean December just isn’t the same as all those other months – we enjoy time off with family, we party with our friends, we pick up the winter flu…the list goes on. Top that off with less working days to get those invoices out! Using 2019 as an example, there’s only 16 working days before everyone charges out the door for turkey.
- The Magic Calendar:
The financial wizards in your business might be too focused on special dates. There’s seldom “magic days” in the calendar when everything changes. The common magic days I see are “1 January” and “Investment Day”. Here are some examples:
- Office Costs increase by 10% for the next financial year, starting 1 January. The chances are … they don’t. The increase is more gradual, not an immediate a step-up at the start of each calendar year.
- Cost of Customer Acquisition (which may have been similar for many years) suddenly improves because investment has been raised. Again, this is probably a gradual improvement. Spend and Benefit seldom happen immediately in the same month.
- Expanding the team:
There’s a common theme in forecasting (particularly companies planning for scale post investment) to underestimate the time it takes to recruit. Forecasters are guilty of underestimating how long it will take to get the new recruit up to speed too. Make sure to take this into account when headcount planning.
- Changing Water to Wine (ah, if only I could master this one)
Essentially, adopting a budget that expects productivity from thin-air. I often see a forecast based on productivity improving. Perhaps productivity will improve, but improvement doesn’t usually come from doing nothing. Make sure to include the spend you’re making to drive those efficiencies – maybe its additional staff training or new software that’s driving the change? I’ve been asked “what if productivity comes from the team being more experienced?”: in that case, you’ll likely increase their wages to keep them.
Good luck avoiding these pitfalls this budgeting season. Should you need some help, we’ll be at Craig Corporate trying to figure out how to turn water into a nice Château Lafite. Otherwise, we’d be happy to help you consider what the future might look like for your business.