Most public company executives and private company owners arrive at the annual budget season with the wrong mindset.

They believe a budget is some type of forecast and that sinking feeling comes over them. Why bother?

The good news here is that it is not a forecast.


What is a budget?


It is the following:

  1. A collection of policies that enable you to execute your strategic plan.
  2. It’s a set of defined actions assigned to specific individuals to get stuff done.
  3. It’s a test for leaders to engage their management team on whether they understand their market, their business and the skills of their team.
  4. It’s a chance to link ambition with resources.
  5. It’s an opportunity to assess the size of investment required for success and the funding assumed in the plan.
  6. It’s a chance to study the alignment of departmental priorities and your strategic goals.
  7. It should be an opportunity to post-mortem the false assumptions made in the past.
  8. It’s a commitment to deliver a quantum of profit by the end of next year.
  9. It’s an opportunity double down on winners and exit non-performing businesses.
  10. It should be a document that’s easy to communicate to your employees and gives them a purpose to their role.

Of course, the first budget is just that. A first iteration of all the desirable policies. It won’t be pretty. It never is. But over time and many discussions later, a version of the budget will emerge that satisfies the ten points above. It will be a realistic assessment of what is possible with the resources at your disposal. In the case of public companies, the leadership team of the divisions will come under pressure to show higher levels of profit. Shocker! However divisional budgets built with rigor will have compelling logic on their side and so divisional leadership should resist this Head Office pressure and negotiate.

This is the mindset required to produce budgets of practical use. Once approved there is only one budget. As next year unfolds and some assumptions are found to be off, best practice recommends that the budget is then tweaked to form the basis of a forecast. But note the promised profit, embedded in the approved budget does not change. The forecast merely outlines the new path to that profit. There is only ever one budget but there are many forecasts which show different paths to that promised budget profit number, because business is a contact sport!

The Portfolio Partnership has three major lines of business:

  1. We scale companies organically building businesses buyers love to buy (timeframe 2 to 5 years).
  2. We scale companies by acquisition creating a programmatic process that works.
  3. We fix VC portcos. The ones in the middle that haven’t made it but could.