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Budgeting isn’t the most pleasant thing to do. Having to justify why each department needs the money (“How much did you say???”) is disheartening enough in good times. Add a challenging previous year into the mix, and getting budget approved is now at the top of the never-again list.

But, there’s no good business without good budgets, and - like it or not - the conversation needs to happen. How, then, do you get the Management to approve your budget? 2020 was, for many businesses, a difficult year. The bank accounts are not exactly overflowing, and - while 2021 has started relatively positively - there is a lot of hesitation and concern.

As a business, you need to spend money to make money. And you, being the person responsible for your department / vertical / country, need to get the money to spend. Here are three steps, plus a bonus idea, for overcoming the hesitation that the Board or Management will have.

First: Take Ownership / Be Clear

Explain, with no ambiguity or finger-pointing, what happened over 2020. Nobody needs a reminder that there’s a pandemic going on - chances are, you’re going to have this meeting over Zoom. To the extent possible, pinpoint exactly what happened in the market, in the business, in your sphere of control. “Market dropped” isn’t good enough - get really specific.

If applicable, also identify preventable issues and reasons that may have contributed to results. Over-reliance on a single customer, overdue collections, operational inefficiencies - hindsight is 20/20, but not learning from experiences is 0/10. Whatever happened last year, happened. The least you can do is take lessons and implement them in future decisions

(Bonus: Read “Principles: Life and Work” by Ray Dalio. He gives a fantastic insight into how the practice of learning from experiences made him a billionaire).

Second: Be Responsible

Once you’ve identified what happened in the previous year, make your case about how and why this year would be any better. This isn’t about wild claims or bold predictions - just logical, data-driven insights into what is happening internally and externally, and how it can be channelled to benefit the company. If you were able to pinpoint some of the preventable reasons that occurred last year, go over what will be changed to overcome them in this year.

In good times, mistakes and oversights are accommodated and excused. In tough times, every penny counts. Your approach and plan should - to the extent possible - take into account every predictable eventuality, and weigh the costs of different outcomes. One of the most powerful in-house workshops we do with clients is the Pre-Mortem exercise, where we go over an incredibly wide range of potential challenges and pitfalls, and use that discussion to craft a winning plan. Even in the massively challenging year we just went through, most clients made even more profits than they had in the previous year. (If you’d like to learn more about the Pre-Mortem exercise, please get in touch.)

Third: Hold Accountable

You’ve identified what went wrong, and have a plan of action to get back on track. But, after you’ve delivered a killer presentation, there will always be that one Board/Management member who says “Well, all that’s great - but how do we know it’s going to work?”. And, they’ve got a point - how do they know that it’s going to work, without losing out on irrecoverable time and opportunity?

This is where real-time (or, at least as real-time as possible) KPIs come into the picture. KPIs should give you live updates, actionable insights, and be future-focused. If your KPIs are not providing the above, you need to revisit your KPIs (Have a quick read of this article on KPI setting if you’d like to learn more - What are the Five Most Important Performance Indicators?). Prepare and present the metrics that will show impact and growth in real-time. Let the Management know what the metrics will show, what the target range you’re aiming for is, and what the early warning signs will be. This will give them the confidence that you’re on top of it, and - hopefully - will get that approval signed!

A Bonus:

When budgets are presented, they’re usually annual. As an example: you ask for $44,000 to spend on paid online advertising, like Google Ads. Management is wary of losing money, you’re convinced it’s the only way forward. Here’s a suggestion: break down the budget.

An example sentence from your presentation:

“For this year, we’re targeting customers that will be looking for us online. To this end, I propose we increase our focus on Google Ads. Our average Lead Acquisition Cost is $235, and - on average - we convert 32%. That gives us an annual target of 187 leads, and 59 clients. Our average project value is $145,000, which gives us a total of $8.55m in new revenue this year. My suggestion is to split the budget into quarters, with the understanding that, if the marketing investment delivers on its target, the next 25% of the budget is released. So, for the next few months, I’d like approval on an advertising spend of $11,000, and the metrics we will be tracking will be (KPI1), (KPI2) and (KPI3).”

{Break for applause from your audience}

By the way, if you don’t know your Lead and Client Acquisition Cost, use this calculator in this post to help you identify it: Role of Client Acquisition Cost in Your Marketing Strategy. The incremental budget approach will allow you the resource to move forward, and will provide the Management the clarity to be able to approve the ask. Rather than a lump-sum approval, this will be more stepwise - give; prove; give; prove.

In the event that you are the owner of the business, feel free to forward this to your team so they can prepare better!

As always, if there is an area in which the business has potential to go further, or if you’re facing a set of challenges that is slowing you down, please get in touch. A problem shared is a problem halved.

To your success,
Murtaza

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Murtaza Manji - Managing Partner of Kaizen Business Consulting Group Dubai
Kaizen’s team of experts have worked with 1050+ companies across 16 different industries worldwide to achieve higher profits, greater productivity, and sustainable growth by creating efficient systems and structure. Get in touch today to see how we can support you.