Page 183 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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very long, you know this is fairly common. But why? If every-
one else did his or her part as diligently as you, this wouldn’t
happen, would it?
Well, actually, it might.
The process of producing a company-wide budget involves
various departments estimating the resources they feel they will
need to meet their goals—sales targets, customer service
response rates, launch of new products or services, marketing
department development of new collateral materials for trade
shows, etc. No one knows what the total of all those cost budg-
ets will be until they’re added together. Only then can the top
managers get the first sense of whether or not their overall sales
and profit goals are likely to be met by the combined budget
submissions. If they do, approval is all that’s necessary to make
the draft the new, official budget. But more often they don’t.
So, in fulfilling their responsibilities to the owners or stock-
holders, management must ask everyone to re-look at his or
her proposals and find ways to raise revenues (again) or reduce
expenses in order to improve the budgeted bottom line. This is
exactly the back-and-forth process that occurred earlier with the
revenue budget. The objective is to achieve a happy medium in
which top management is content with the sale and profit com-
mitments of the organization and managers with budget respon-
sibility are comfortable that they can achieve the assigned goals
with the budgeted resources.
During such reassessment, managers might look to ideas
such as these to reevaluate their cost requests:

• Operating with the minimum number of employees that
can handle the work
• Better worker training to improve productivity and reduce
turnover
• Reducing plan operating costs, such as by using automa-
tion to save on labor costs
• A lease vs. buy analysis before acquiring new equipment
(note that this also has cash flow ramifications, another
consideration for growing companies)