The Power of Allocation

Putting together a comprehensive strategic plan involves careful thought about the future of the enterprise. Tactical planning timelines help move ideas into action. Then comes the tricky part: creating the budget which will support these initiatives.

It’s typical for budget preparation to begin with a look at the most recent fiscal year. In fact, many of the items from last year’s budget will carry over to the following year except for extraordinary items reflecting major changes. Line by line, expense budgets look about the same with only the numbers changing to reflect the change in expectations found on the income lines. But there may be something missing.

While budgets project a year end profit, on overlooked opportunity is the process of allocating percentages of the anticipated surplus to go toward ongoing and newly created initiatives. For example, what percentage of profits will go for a reserve for obsolescence?

A percentage can also be allocated for training and development of team members. Items like dues, subscriptions and professional development opportunities increase competency and can increase morale.

There are others and the complete list of allocations and percentages applied will vary depending on the needs of the organization.

While margins may be tight, it doesn’t mean allocations should be abandoned.

When creating positive, goal directed habits, success in the long run is not dependent on “how much” but in the purposeful consistence and faithfulness to the plan. One way to accomplish this is to commit to a number that is smaller than you think you can do. For example, if you think you can commit to a monthly number of “X”, set aside “X” minus some number and commit to it for the full year. It is far more important to establish the consistency of habit than the amount of your monthly commitment. Once this new habit is established, it is easier to increase the amount.

Effective budgeting is one of many 22 chapters in Beyond the Bottom Line; a financial training workbook created for non-financial managers in the printing industry. For a sample chapter, email me at joe@ajstrategy.com