To quickly undermine your credibility, as a boss, just mismanage your budget.
Routinely spending too much is, obviously, bad. But it’s important you know that spending too little is also problematic. Why? Because routinely striving to come in UNDER budget – an approach that (far too) many leaders take – also proves you’re ill-equipped, or flat-out unable, to properly manage the company’s money.
Rather, strive for your actuals to come within +/-5% of your budget** – THAT shows you know how to work with money AND make money work for you.
Tips for Maintaining Strong Fiduciary Controls Throughout the Year
- Review your financial reports within 3 hours of receiving them.
If you aren’t receiving your financial reports on a timely basis, complain to someone who can do something about it.
- Note any variances of +/-8%, or more, off of expected amounts**
Request a written Explanation of Variance (EOV) from the appropriate manager(s) for each and every line item variance.
- Make sure you actually receive those EOVs from your managers.
Why? Because you often won’t.
- Make sure their EOVs make sense.
Why? Because they often don’t!
- Adjust spending monitoring and authorization accordingly.
Variances happen. But it’s your job to insure they don’t continue to happen as a matter of course or because no one was watching what needed to be watched.
- Insist on hearing the BUSINESS justification for any/all expenditures PRIOR TO any actual spending.
Be open to requests for budgeted (and non-budgeted) moneys, but always – ALWAYS – require staff to articulate the business need for such expenditures as a prerequisite for even considering their request/proposal. You can do this by simply asking, “What is the NEED, here?”, “Why is it not just a nice-to-have?” and “Why can’t it wait until next year?” and probing into whatever is said. Do this enough, and you’ll find they start answering your questions before you even have to ask them!
Tips for Establishing Strong Fiduciary Controls During Budget Season
- Pay particular attention to the calendarization of expenses.
Very few line item expenditures divide neatly over a 12-month period, even though the spreadsheet you’ll be working with will likely auto-populate in that way. Indeed, most mid-year EOVs result from some sort of easily-avoidable calendarization error.
- Give spending control some thought before the year starts – not just once it’s too late.
Across-the-board increases are easy enough to propose, but rarely stand up to even the most modest of push-backs. Why dilute your credibility so unnecessarily?
- Identify two-to-three line items to meaningfully REDUCE.
Consider how, exactly, you can make that happen. Look, specifically, at large, seemingly fixed, line items: How might you effectively negotiate those rates downward? Also look at where you mis-categorized moneys in the past. Don’t just carry mistakes forward, clean up your mess.
- Identify two-or-three line items that deserve an INCREASED investment.
Crisply articulate your rationale (in business terms) for adding to this part of your budget. (Think ‘essential upgrades’.)
- Identify two-or-three ongoing initiatives to wind down.
Just because continuing last year’s project is approval-capable doesn’t make it automatically approval-worthy. One of the biggest sinkholes of next year’s money comes from continuing to fund in support of last year’s sunk costs.
- Identify two-of three brand new initiatives to recommend.
Again, crisply articulate the business justification for each, being sure to clearly address the ‘Why?’ and ‘Why Now?’ questions.
Showing that you can ably manage money builds trust and credibility in you as a leader … which makes MAINTAINING STRONG FIDUCIARY CONTROLS a very powerful Leadership Move, indeed.
** To be sure, check with your accounting department to find out what they consider to be acceptable variations in your organization as some uses a tighter +/-3%, while others are far more lax.