Recently I was talking to a successful business owner about cashflow management, sales etc. He was talking about a competitor firm of his which he knows well who recently took upon a job even though the client is a known payment risk. So why was the competitor even taking the job – to meet budget. To make matters worse the competitor had dropped his price to get the job.
Why would a budget be so important that a stupid business decision was made?
So what are the place of budgets, particularly sales budgets?
There is no way budgets should take precedence over sensible business decisions. Budgets are useful but can not be restrictive. Turnover for turnovers sake is just stupid. If as happened here a order was taken at a lower price and with doubtful payment history just because of a budget then the budget needs to be thrown out.
Are budgets useful – yes. Budgets give us framework which can used to help drive a business.
Are budgets bad – yes. Budgets restrict the business. Budgets are not measuring what really matters, that which is success in the eyes of the customer. Budgets can create stupid behaviour like that outlined above. Also budgets by definition act like an upper limit to growth.
The focus should be on measures what really matters. Not just sales.
The old quote -“Volume is for vanity, profit is for sanity” – could not be truer. (And profit is not what really matters to customers ).
So what are the conclusion in respect of budgets.
They can be useful in the resource planning and management of a business but they must not dominate the business. The budget must not be sacrosanct and thus create crazy behaviours.
So the answer is Maybe.