Your budget is your first tool in building capital and wealth. It helps you allocate your resources effectively among your wants and your needs.


Most companies use budgeting as the backbone of their management and financial planning systems. Without question, you need to have a way to keep track of your income and expenditures. This helps you determine the profitability and efficiency of your business.

The sad thing is that many companies have an ineffective, politicized and mind numbing budgeting process. This has the effect of stunting the growth of the organization, because those preparing the budget typically design it to minimize their risk by setting targets that they absolutely think they can hit. At the end of the year, the managers hit or beat their targets and receive hearty congratulations from senior management for a job well done. Of course, if they fail to hit their target, they get the big stick!

The problem is: The business delivered only a fraction of what it could have achieved.

Many companies have an ineffective, politicized and mind numbing budgeting process.


The true objective of the budgeting process should be to seek out every possible opportunity for growth, identify real obstacles in the environment and come up with creative but viable plans for stretching the goals of business and its people.

The budgeting process may be quite formal, especially in large companies, where budgeting is carried out by committees. On the other hand, a small business owner may jot down his budget on some scrap paper. Some business owners even manage without writing anything down, they have done the budgets in their heads and can remember them.

When you budget for your business, you should ask yourself these questions:

  1. How can we beat last year’s performance?
  2. What is our competition doing, and how can we beat them?

Your budget should arise from a process of candid debate and should culminate in a growth scenario that is neither negotiated nor imposed. Your budget should constitute an operating plan for the next year, giving direction on targets and how you are going to beat them.


Once you have budgeted properly, you can then link rewards to performance against the previous year. You then measure your performance against the competition, taking into consideration business obstacles. Based on this, you make a plan to achieve your strategic objectives.

If your budget process is executed properly, you get a culture of accountability, ensuring that your people deliver their operational and strategic commitments, and take responsibility if that does not happen.

This process requires bold, wide-open thinking about possibilities. The process is not about delivering good enough plans and beating them. It is about having the courage and zeal to reach for what can be done.

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