25 Oct Budgeting for SMEs: what’s the point?
Budgeting for SMEs: what’s the point?
25 October, 2021
As autumn approaches, many businesses start their budgeting cycles. This can devolve into several budgeting sessions, endless spreadsheets and extensive deliberations. With any luck, you will have set a budget by the beginning of January. But inevitably in February, a new pandemic breaks out, a great new business opportunity emerges, or your biggest customer pulls out. In other words, after a month, your budget can be thrown in the bin.
Beyond budgeting: budgeting 2.0
The beyond budgeting model is an interesting alternative. It essentially means ‘moving past the budget’. The beyond budgeting model was created in London in 1998 by the BBRT (Beyond Budgeting Round Table) and is being embraced by more and more companies. The advantages that these companies mention include higher operating speeds, lower costs, a more future-oriented approach and higher employee quality and commitment.
The BBRT describes traditional budgeting as a performance contract that is entered into between the company and the management. Managers are assessed on the extent to which they have been able to achieve the budget goals. This encourages manipulation, pushing the limits (both ethically and in terms of accounting) and occasionally even fraud. This behaviour is inherent in the system of budgets and rewards in many organisations. Managers may first try to keep their budgets (the standard) as low as possible and then do everything in their power to achieve this standard, even if it harms the organisation. In the beyond budgeting principle, the standards are determined collectively and relative to the competition and market.
Beat the competition, not the budget
Beyond budgeting is a dynamic management model that moves past budgets. The starting point is employee autonomy. It emphasises customer needs and ensures clear objectives with the associated performance evaluations, e.g. based on management dashboards. This means that beyond budgeting requires up-to-date insight and rolling forecasts. You always want and need to look ahead in order to be able to react quickly to changing market conditions. People and resources are only allocated where they are needed and where this allocation is in line with the strategy; not simply because it is in the budget. Beat the competition, not the budget! This ensures efficient processes and projects while keeping a close eye on costs.
If you would rather not spend your time this autumn on elaborate budgeting models and discussions, and instead prefer to look toward the future with a client-centred approach, then Joanknecht Integrated Finance is happy to assist you with implementing beyond budgeting.
Get in touch with your regular contact person at Joanknecht or one of our specialists from Integrated Finance.