Luke Johnson is a world-famous entrepreneur. He’s credited with making Pizza Express a high street name; he’s served on the board of over 100 companies, and it’s helped him amass a 260m fortune, according to the Sunday Times Rich List.
But everyone gets things wrong sometimes; indeed, it’s likely that if you’re on the board of countless companies, you’re going to drop the ball sometimes. Johnson’s clanger came with Patisserie Valerie, the luxury baking chain, which has been in the news for what’s been called “accounting irregularities” which are costing the business upwards of £20m!
Johnson has done the right thing and put his own money in to save the business. But there’s a lesson there for everyone: even the finance professionals make mistakes (whether it’s something more serious is up to the courts…), and it’s everyone’s job in an operation to watch the pennies.
That applies to non-finance professionals too, because many of us will get our first taste of managing a budget by heading up a department or a project. If terms like balance sheet or business case swim in front of your eyes, it might be time to look at a basic finance course. Because you don’t have to be a finance expert to understand money, but it certainly helps to have the basics if you’re going to run, manage or contribute to a business.
A budget is money that is allocated to a team, department or business unit to enable it to carry out its work over a given period, usually 12 months. But money doesn’t come easy, and one of the challenges of being a manager is bidding for that money against the many other priorities in the business. Getting budget is often a bunfight!
And then there’s the difference between Business As Usual (BAU), the money you need to keep the lights on; and extra budget to do the things you really want to do – like buying new equipment, employing more staff or trying out new ideas. BAU money is quite easy to get; whereas more speculative expenditure will constantly be questioned.
Either way, going to a fight unprepared is a very bad idea, so put in the same sort of preparation when asking for money as you would for a job interview:
- Do some homework: When you asked your parents for money as a child, their first question would have been ‘Why’? A business budget is no different. Prepare to put your case, with authentic, careful thinking and back it up with some facts.
- Fix a problem: “We can save £50 per person per year” is pretty seductive. If you’re planning something new and exciting (which is always a hard sell…), explain what benefits it will provide, in words that anyone can agree with.
- Paint a picture: Despite the fact that finance folks like their numbers, everyone responds well to a vision. “Imagine not having to spend hours copying and pasting” is a lot more exciting than “I want to buy a desktop productivity tool”.
Once you’ve got it, managing a budget is similar to looking after your personal income and expenditure. But you’ll likely need to record everything to account for it. Failing to show where the money goes is how organisations end up in Patisserie-Valerie-style hot water.
And the final shocker? You generally can’t carry forward any unspent budget into the next year. Instead of proudly spending the extra dosh you saved, you have to bid for it anew – which is why at year-end so many managers go on a spending spree to soak up any remaining funds – otherwise they’ll actually be expected to get by with less in the following year.
Most new managers find this bizarre and counter-intuitive. Blame US President, Jimmy Carter, who popularised this process in the public sector – called Zero Based Budgeting – in the 1970s. Alas, hard experience says it works. So, the budget bunfight is in fact an annual event.
If you’re going to find yourself enter this competition, take some time to think about expenditure and how it’s allocated. Bidding for budgets, managing and accounting for them is a game, and with the right approach it’s one you can win.
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