How Business Unit Managers Drive Budgets To Stop Leaks Promptly

Did you know that intuition and practical assumptions play a big role in budgeting? Before we move to budgeting, every business unit manager needs to know the conditions of the economy and market. How does it affect our products and services and how does it create new opportunities for us and how prepared are we to carry out the new strategy? Such questions remain forever relevant. 

2016-08-30 blog 37 how business unit managers drive budgets to stop leaks promptly

Jeremy Hope, the author of Beyond Budgeting says “Accounting results dominated most managers’ attention to the point where they no longer knew, or cared, about the production, technological, and marketing determinants of competitiveness.”  This rings true to the core when it comes to business unit budgeting. 

The key word for business unit managers is “practical”. If only they treat their units as small businesses and behave like they’re the owners, it would create a new sense of realism. So the first step is to break even before you start to grow and breakeven is the ratio of fixed costs to gross profit margin. The business unit manager has to show how he can lower fixed costs meticulously, have a sense for the labor costs to run the business and understand the sales and marketing effort.

For budgeting to work, the business unit manager has to have detailed conversations with his team about their assumptions before assigning any numbers or targets. If the sales leader says he or she will increase sales, then we need to know how he’ll close or even how she’ll get more leads into the funnel. If the production manager decides to raise prices, then he needs to be able to explain competitors’ reactions and why customers would continue to buy from this business. If he decides to cut prices, then we need to know how we could improve efficiencies to keep profits. So quality inspection, control and assurance becomes crucial. All assumptions need to stem from practicality. Can the business carry out the strategy using these number of people, with these skills or do we need to evaluate our ability for the new market?

The key word for business unit managers is “practical”. If only they treat their units as small businesses and behave like they’re the owners, it would create a new sense of realism. 

Henry, a business unit manager asked an intriguing and yet precise question: “What does finance excellence mean to our business?” Now by asking such an encompassing question, he has tied the efforts of Engineering, Quality, Sales, Marketing and the rest. 

The job of the business unit manager is to create an atmosphere of free exchange from his business teams so we get to practical budgets and the entire team aligns to rally behind the leader.

Written by Suresh Iyengar, P.E., President, Business Unit Execution LLC––“Explosive Business Coaching Houston Results For Small Business”. Want even faster results? Are you ready to learn? Call 281.410.5375 and speak to your Profitability Coach Houston today!

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