These days there would be rare instances where a business did not produce profit and cash flow budgets—especially larger businesses that carry significant debt. (continued from August 2015)
I suggest that a good plan is one in which:
- All family members have been given the opportunity to articulate their future needs and expectations in a non-confrontational way. These can be listed as dot-points under each member’s name, and ongoing discussion will be required where some requirements conflict
- There is a good understanding about the capacity of the business to meet those needs and expectations. Usually this means that a business is generating profits in most years, and is not carrying too much debt
- The family has collectively agreed broad strategies to deliver the agreed needs and expectations: to do so, some actions may be implemented each year
- Clear statements about needs, expectations, capacity and strategies are noted in a one or two-page document that can be reviewed regularly, and amended as circumstances change.
This document then becomes the guiding context behind each budget.
If budgets are aligned to delivering the required strategies then, in due course, family expectations have a chance of being met.
Furthermore, the bank manager will also have a clear understanding of where the business and its owners are heading, and why certain actions are being taken.
Conclusion
Whether you produce your own budgets entirely, or engage an adviser to assist you, the annual budget process can be an automatic process to keep the bank happy, or it can be an opportunity to review the owners’ long-term vision and attempt to align that year’s financial plan to meet that vision.
Such an approach can create much more interest and discussion around the budget within the family. As a result, there will also be a heightened awareness of how the figures are derived and what they represent.
As a greater understanding of the financial figures is attained by family members, this will be unconsciously related to bank managers. And if there is one thing a bank manager likes, it’s a family whose operational members have a good understanding of financial performance and position.
For more information, see Tree Fruit September 2015
