With 2016 just around the corner, many architecture and engineering firms are already planning and budgeting for the upcoming year. Has your firm scheduled an annual corporate budget exercise to plan next year's financial actions?
All firms should prepare an annual budget and use it as a management tool to “steer the ship” in the desired direction.
A well-conceived and executed budget offers many benefits:
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Provides a benchmark to measure achievements and shortfalls
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Helps the firm set directions to meet short-term goals
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Provides mechanisms to develop long-term strategies
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Serves to change corporate direction
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Allows the firm to implement strategies to correct less than-desirable results
The budget process is also an excellent way to foster teamwork and to obtain a “buy-in” mentality of the firm's actions and direction. Because most firms focus on maximizing their billable hours, the strategic planning tasks tend to be relegated to only a few people. Although this idea makes sense, it leaves some staff members feeling “left out” of the business process. A well-planned budget process involves everyone and provides valuable input, thus improving overall morale.
The budget also helps to set accountability for department heads, functional areas and other partners. It's hard effectively to hold people to a budget if they don't buy into its creation. The process helps achieve consensus and is an excellent way of educating other members to the firm's business aspects and goals.
The budget process should be the responsibility of the financial partner and the “controller.” If the firm is large enough, a committee consisting of the financial partner, controller, bookkeeper and one other partner or associate should be established. Selecting an additional partner or associate allows for additional input from a different perspective. Ideally, this other partner/ associate won’t be a senior-level person.
As you work through your budgeting process:
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Begin the process during the 10th month of the fiscal year, and plan on completing prior to the year's end (requires utilizing actual and projected data for the current year).
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Establish a committee and set up responsibilities.
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Prepare a timetable with tight, reasonable deadlines.
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Allow the participants time in their schedules for the process. Don’t expect them to do everything in the evening or on weekends.
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Prepare input forms for department heads, personnel responsible for functional areas and all partners/principals.
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Hold a meeting to explain the process, forms and the timetable.
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Make the financial officer available for “coaching” or assisting inpiduals as they work through the process.
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The managing partner should have adequate input into the process and should review responsibilities.
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Present the final budget to owners for ratification.
Now it's your turn: What are your firm's key initiatives to reach your financial goals in 2016 and beyond? How is your firm budgeting differently to reach its financial goals? What are your budgeting successes? What are your budgeting challenges? All comments welcome!
Looking for more information on how the industry's top-performing firms have been successful, check out PSMJ's free ebook, Here's How They Did It! Becoming Part Of PSMJ's Circle of Excellence.