Reduce your budget and grow the business

The business of business is simple.

Whether it’s profit-driven corporations, government services or not-for-profit organisations, this time of year when budget reviews are under way.

Essentially all businesses are driven by simple arithmetic. Profit (or final outcome) is derived by subtracting costs from revenue. It’s really all very simple.

In business the aim is to grow revenues, and of course, profits. The mandate to achieve this is given to the senior executives that form the so-called management team.

The message is to grow or stagnate and thus risk being overtaken by more aggressive competitors.

The inevitable budget session

Predictably, as our executives develop their budget for the next year, you can be sure there will be a requirement for more funds – more money to spend so the department can grow and consequently achieve the forecast improved outcomes.

It is quite amazing that despite all of the technological marvels we provide for our staff to make them more effective and more efficient, costs continue to grow.

Even in government departments it is a long-held tradition to get together in early June of each year and “blow the budget” by purchasing anything that can navigate the overseers of expenses in the few weeks before that mystical June 30 year-end.

Is this a better way?

One wonders what may happen to ever-expanding budgets if some inversion to this thinking was applied.

Take, for example, the head of a department that may have an annual expense budget of $20 million. Predictably, the executive comes to the budget session with a well-justified request for an additional 7% for the next year. Say an increase to $21.4 million – quite a modest increase, but one the executive assures top management is essential to “grow the business”.

It may be interesting to consider what may happen if that very same executive was to be challenged.

“No. Instead of seeking more funds, if you can achieve your goals with 10% less, you will receive 75% of the reduction – in this case a whopping $1.4 million – as a cash bonus, perhaps to be split among your staff in proportion to their salaries.”

Now there’s a novel and innovative approach to management.

What now?

As the budget process starts maybe it’s time to give consideration to this radical, but perhaps very practical way of achieving the desired results without the never-ending need to spend more money.

Instead of more money, find better ways to achieve your outcomes.

Again, this is innovation, which is not a bad thing to introduce to a business.