In February of this year I started training for RAGBRAI XLIX- The Registers Annual Great Bike Ride Across Iowa that took place from July 23rd through July 30th. To prepare I researched the recommended training regime and modified it to allow more time to build up my bad left knee. My training partner and I followed our plan(s), for the most part, and I’m happy to say we both road the whole event without any issues! What, you might ask, does this have to do with budgeting. Well, you see, I am a fractional CFO that works with multiple companies and a strong proponent of budgeting and tracking results to budget. During the close-to-500 miles cycling across Iowa, I had some time to reflect on how my preparation for the ride (after massive intimidation at the prospect) allowed me success. Alas, my mind shifted to my finance persona, and I realized there were many similarities to budgeting (I truly was not delirious).
I’m going to break this down into two components:
For RAGBRAI my training partner and I prepared a detailed plan. We researched recommendations and arrived at a plan that would build up our endurance and allow me to strengthen a weakness (my knee). We had a clear vision of what we wanted to accomplish in our training, and we developed a detailed plan to carry out that vision. We trained about 50% together and 50% independently due to some divergence in our training goals, but more significantly, due to the training plan calling for 3 to 4 rides a week. It was impossible to coordinate our schedules to that level. We also planned what our days at the actual event would look like, how fast we would ride, the number of stops we anticipated at the towns along the way, etc.
In budgeting, a company’s management should discuss/research what they want to accomplish in the coming year. The team should have a clear, shared vision or goal of what the year will look like. Then they should put together a budget that financially demonstrates how they plan to accomplish that goal. Through a detailed budgeting process, it will become clear the level of risk involved in the ability to achieve the plan. A detailed budget should also allow clarity on strengths that are being leveraged or weaknesses that are being shored up. Developing the detailed budget plan within the management team will allow each participant to recommend adjustments they believe are necessary for achievement of the shared goal given their scope of responsibility. This will also give management what they need to have full ownership in the budget.
Back to biking. We tracked our 6 months of training against our plan. If a step in our plan didn’t pan out (such as a ride being rained out or my getting COVID) we adjusted our plans moving forward to continue to work toward achieving our goal. When we left for Iowa, we felt we had trained appropriately and felt as secure as possible in our ability to complete RAGBRAI. Then on July 23rd we started our adventure with 6 other team members and 17,000 total riders. The first day of the ride we encountered far too many riders at our chosen start time, it was no fun and our desired pace was impacted. A week of riding like that would have been torture. We were slower than desired at the beginning of the first day’s ride due to congestion but then as the day progressed we found ways to get ahead of the crowd. As a result of this experience, we targeted starting our rides one hour earlier for the remainder of the event and that made a significant difference. Each successive day was fun and we accomplished our goals. The midcourse adjustment to our riding plan paid off.
As a company enters a new year the budget should be fully vetted, approved and communicated. As the year unfolds, actual results should be compared to the budget and analyzed so that mid-course corrections can be made. The best budgets have thought given to monthly or quarterly segments and don’t just take an annual number and divide it by 12 months or 4 quarters. If things go off track the management team needs to determine how to get back on plan and this will be made easier if significant effort and attention has been given to developing the detailed budget plan. The important thing here is to use your budget as a tool and not as an all or nothing proposition. Manage your budget as a team and assign the appropriate team members the responsibility for each line item – creating clear accountability. Avoid assuming budget shortfalls in revenue will be made up later in the year unless your business is seasonal and this would be a normal expectation. Address issues quickly since this will give you more time for corrective action to get you back on track.
In conclusion, whether you intend to bicycle across Iowa or have a successful financial year in your company, your chances of success improve significantly with a well thought out plan that you can use as a tool to achieve your goal. Contact us if you feel your business could benefit from the expertise and leadership of one of our fractional CFOs.