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Scale-up Budgeting Best-Practices
At this time of the year, before the New Year starts, and with it, a new fiscal year, the “time-measuring unit” for the financial performance of a Company: it is the time to put things in perspective, where do we come from, where are we, where do we head to?
Good governance bodies, executive management, and their Board need to think of the budget for the next year.
Is it only financial and adding numbers to numbers as to project the financial future?
We, at TheClubDeal, do not think so.
A good budget is a cornerstone for a good management of a new exercise. A good budget is not only quantitative but also qualitative.
It is maybe an influence I learned while living in Japan, but the perspective, in projecting the future is of high value. While you can no more influence what has been done in the past, say the last 3 years, you may learn from that, so to project the future, say the next 3 years. A time-lapse of 6-7 years is indeed the maximum cycle, in those fast-evolving times, I believe, in which a company or a human being may project his destiny.
So, what is a good budget (in our view)?
A good budget will outline certain financial objectives to follow to ensure the financial sustainability of the company. That sounds evident. It sounds evident to understand the cost necessary for supporting development, be it in research or in sales, and fix objectives that the value created by those developments justifies the investment. Depending on the business, the investment is not forcefully creating value by the generation of revenues, especially if we think of developments in the spheres of technology or health.
The mechanics of our societies make it necessary to obtain a result judged as having created more value than the investment or cost dedicated to that purpose.
A basic budget in a commercial company will therefore set the necessary revenues to offset or create a marginal or substantial profit above the bottom line. It depends on the collective objectives of the owners to fix that target.
We, at TheClubDeal, believe that good governance mechanics start with good budgets and their metrics.
We do not compare top line or profit the same way with only one perspective the dry financial one. We are convinced, and so are many actors in the private equity sphere, that the quality of earnings will strongly influence the value of the company.
Recurrence of revenues, quality of diversification allowing anti-cyclical resilience, and intangible aspects of value creation need to be integrated into a good budgeting exercise. Intangibles are, for instance, but not exclusively, geographical, and sectorial distribution of customer basis, deep selling, data mastering, ESG aspects, etc…
This is because of this comprehensive and multi-dimensional vision of a company that we dedicate a lot of time to our associated entrepreneurs, so to support them in this exercise and deliver a comprehensive vision and understanding to the different stakeholders, such as the Board for the responsibility in assessing the good functioning of the company, or the staff in charge of delivering the budget, in whole or in part, and who will therefore understand their role and responsibility in contributing to the overall goal of the company.
At TheClubDeal, we love entrepreneurs and entrepreneurship. While specializing in three sectors: Life Sciences, Tech, and Smart Living, we understand the dynamics of governance mechanics and may help you, an entrepreneur, or a board member, of whichever sector, in structuring a budget, the metrics, and the good measurement.
Dear entrepreneur, we hope this little article has helped you convince yourself that a budgeting exercise is an investment for value creation that will align all your stakeholders behind the same goals!
We dispose on tools enabling better governance. Do not hesitate to contact us for support or advice.