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I am just months from my 40th anniversary as a finance and business professional, a career that has included accounting and consulting firms, industry C-suite positions, and business owner/partner roles. While the year 2020 has broken me of saying things like “I’ve seen it all,” one of the constants has been skepticism of the value of planning, even such routine processes as annual budgeting. We do it, but often with lingering doubts.

The volume has only turned up of late. Had anyone come to us in 2019 with a 2020 plan that covered the events of this year I’d have suggested a therapist, not a business advisor. 

But here we are. How much is planning worth in unprecedented, unpredictable times? Abraham Lincoln has been quoted as saying "Give me six hours to chop down a tree and I will spend the first four sharpening the ax;” while some dispute the provenance, there’s little doubt that Lincoln insisted on both plans and action despite tremendous unknowns. As unpredictable as this year has been, I would argue that the American Civil War was far worse. 

I’ve written recently on strategic planning; the following comments are focused more on shorter-term plans such as annual budgets done within the context of a broader strategy. But whether long-term or short, one of the biggest problems in business planning is a misunderstanding of its purpose. 

1. It’s not an accounting exercise. An annual budget should be a collaborative effort between key disciplines in an organization including sales, marketing, operations, logistics, finance, tech, etc. The purpose is to lay out likely (and perhaps a few unlikely) scenarios to determine probable costs and benefits, availability of necessary resources, and alternatives. The dollars are signposts and benchmarks, not the plan itself. Accountants should be translators, or maybe hall monitors; if they end up doing the budget with little or no key employee engagement, it’s a waste of time. 
2. Yes, there is a lot of guessing. Educated guesses hopefully, but it’s not prophesy. Accordingly, it is critical to document the assumptions behind every line on a budget. When Morrison assists clients with planning and budgeting, we use an internally developed financial modeling tool and processes that require an explanation for every line. I’d rather someone clearly see – and question – the logic up front than ask “What were you thinking?” at the end. In short, if you have to argue about a budget or plan, do it in the beginning, not the end. 
3. It’s not target shooting. It’s closer to skeet shooting; the target moves. You almost always have to adjust your aim. I once worked for an organization at which my bonus was largely dependent on meeting pre-set annual goals. Due to changes in the business environment, I told the board midway through the year that I could meet those goals but that if I did it would cost them a lot more than my bonus. We changed the goals – and my bonus objectives. Which is another lesson: Be careful what you incentivize people to do, because they’ll probably do it.    
4. It’s in pixels, not stone. Don’t get hung up on hitting your budget to a T. Again, it’s signposts and benchmarks, not handcuffs. I recall telling my team at one employer that I didn’t care if we went over budget as long as we did it on purpose. Just as the plan should be intentional and well considered, so should deviations.

The main thing to get right in a plan is its true purpose and your mindset. A financial professional or accounting consultant can help as a guide and second set of eyes, but not as a substitute for the right outlook and a truly collaborative effort. 

About the Author
Brent Morrison is the founding principal at Morrison. To get in touch with Brent, please find contact information for Morrison here.