People don’t seem to enjoy budgeting much, do they?
On the one hand, you’ve got people bidding for budget they don’t need “just to be on the safe side” – then scrambling a few months later to spend every penny of it so they can justify the same bid plus 10% next year.
And on the other hand, there are people who come to you midway through the year asking for extra budget on the assumption that as the agency leader, you’ve got a big pot of unallocated cash waiting to be claimed.
Without it, they say, they won’t be able to do their best work – but why didn’t they think of that when budgets were being set?
Everyone is annoyed at everyone else and budgeting becomes an annual nightmare.
All that’s a real shame because, done right, there’s no reason for budgeting to be difficult or to be a cause of conflict. In fact, it can make life easier and help your business operate much more efficiently.
As 2021 budgets begin to take shape in many creative agencies, here’s my advice on how to make the process work.
Why you should prepare an annual budget
I’m a passionate believer in the power of budgeting. A budget provides a foundation for all your activity during the year. It helps you live within your means, remain profitable and makes you better equipped to handle the unexpected.
It’s also how you know whether you’re on track – are you performing in line with expectations, or is a course correction needed?
For creative businesses in particular, budgets can be vital in managing the ebb and flow of work.
If you run a video production house which typically does more work in the summer, for example, your budget should anticipate the bunching of costs and income, and the corresponding dearth later on in the year.
Much like proactive reporting, rigorous, sensible budgeting is also reassuring for lenders, investors and stakeholders. It shows you take your responsibilities as an agency leader seriously and tells them, essentially, that they can get off your back – you’ve got this.
Resolving budget battles
To make the process go more smoothly, you should start by reflecting on the causes of conflict and anxiety around budgeting in your creative agency.
A common problem is business divisions behaving as if they’re in competition for a limited pot of money. Which, let’s face it, they sort of are.
This can lead managers and team leaders to devalue each other’s work – “Why do they need two print designers when we can’t have another copywriter?”
Another common cause of bad temper at budgeting time, in my experience, is the resentment people feel at being asked to think three, six, nine months ahead: “How can you expect me to know what I’ll be spending next October, for goodness’ sake?”
This is down to a fundamental misunderstanding about what budgeting is, and a fear that they’ll be in trouble if they can’t magically get it right down the last penny.
A related issue is fear of missing out. People often end up bidding for budget to cover all sorts of stuff they’ll never realistically get around to doing, just in case. It puts them under pressure, locks up budget that could be used elsewhere, and can cause resentment across the organisation.
Finally, there’s the fear people have of giving up budget during the year in case that means their budget will be cut arbitrarily in the year that follows. If you hear people saying “use it or lose it”, you’ve got a problem.
A healthy budgeting culture
The antidote to all that stress and aggro is an open culture of honesty and trust.
It can take years to build that, of course, but you can get a long way with doing the right thing throughout just one budget cycle.
First, you need to hit the reset button. Tell everyone that this year, you’re doing things differently.
- You want to start the year with accurate budgets, without padding.
- During the year, you’ll expect people to surrender their budget when it becomes apparent they won’t need it.
- But, at the same time, if someone comes to you during the year with a business case for additional budget, you’ll commit to working with them to find it.
This is about leadership, really. You, as the agency leader, need to get across to your team that it’s about everyone pulling together to help the business succeed – not team versus team.
To support that, be as transparent as you can throughout the budgeting process and involve managers fully in planning.
It’s sometimes necessary to make executive decisions about final budgets after talking to the board and other stakeholders but, if possible, try to avoid nasty surprises when allocations are made.
Start by defining your organisation’s goals and strategy – and only then think about budgets. If it’s not a priority this year, does it need a line in the budget? Just because it was there last year doesn’t mean we have to let it sit there forever.
Standardise processes and documentation across the business. In fact, ideally, get everyone to work on the same document. You need a single, reliable version of the truth, comparable across teams and divisions.
Challenge any attempt to bid for budget against ‘miscellaneous’, ‘general’ or ‘contingency’. Encourage people to be specific in their budget bids. You’re not asking them to be fortune tellers, just to make some assumptions with workings.
Equally, avoid wishful thinking. It’s not uncommon for team leaders to go the other way and instead of over-bidding, they’ll tell you what they think you want to hear and massively underbid. Challenge that, too, because you’ll probably end up paying the hidden costs anyway.
Finally, review budgets frequently. There are so many variables – I mean, just look at the state of this year! – that it’s very rare for a budget to stay accurate for long. You should look at budgets and make adjustments on a quarterly basis, at least.
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