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Are Your Billing and Sales Budgets Hurting Your Business?

Kim Radok29 June 2014

ARE YOUR BILLING AND SALES BUDGETS HURTING YOUR BUSINESS?

Billing and sales budgets are a part of the performance criteria used by business owners and managers to achieve their operational business objectives. These measurement criteria provide guidance and support towards creating the successful business.

However billing and sales budgets can also be part of the problem when the operating efficiency and performance figures are not as anticipated. These problems may occur when performance criteria are prepared to suit a business owner's or manager's personal needs, rather than the objectives required to run a successful business.

For example, when performance objectives are unachievable because management wants employees to work harder to satisfy management egos, the employees can soon become disenfranchised and / or disheartened. In these situations, employee performance inevitably suffers.

Alternatively billing, sales and customer service employees soon realise, the only criteria for keeping their jobs, is by making budget. It doesn't take too much imagination to realise, if pushed hard enough, these employees will use any excuse to raise an invoice to make budget.

We have also seen the effects of inappropriate behaviour when one group of people within a business, seek additional monetary rewards (on top of their normal wage). Senior managers are often tempted to make funding or expense reduction decisions based purely on gaining a financial advantage for themselves. Whether these decisions ultimately cause long-term damage to the business is immaterial. It was going for the bonus which was the real incentive behind their decision making.

The business environment is continually changing so it should come as no surprise our suppliers and customers are also adapting to these changes. This means no budget should ever be set in stone. The budget should be re-evaluated occasionally to ensure it is valid and achievable for the current business environment.

How to design the best performance objectives for your business?

Obviously, the first priority in designing any budget is to ensure the business makes a profit. This is the key issue behind setting any billing hour or sales budgets. After all, if there is no profit, there is no business in the long-term.

Once you have identified the break-even figure profit figure, you can move forward and introduce other factors which lead to setting the final performance budget. As previously mentioned, budget objectives should be revalued periodically. Ideally, with the pace of change in the business environment today, this re-evaluation process should be completed annually.

What factors should be re-evaluated our performance budgets?

In my view, the following the factors need to be considered.

1  Is the budget achievable in today's business environment?

If you find the budget target is too low, periodically changes should be made by raising the targets incrementally until you find the ideal match of employee performance with the business circumstances of the day. On the other hand, if nobody is earning a bonus or  reaching their budget targets, the target must be reduced to an achievable level.

2  Is an individual employee achieving budget at the expense of  other operational issues?

In business organisations where unreasonably high levels of pressure to achieve billing and sales budgets exist, budgets are often achieved via improper actions.

Unfortunately as a result, you often find other areas within the business have increased problems which prevent them achieving their operational budgets. For instance, you may find customer service or accounting and administration departments have issues because  of increased disputes, customer enquiries increase or go unanswered, invoices are incorrectly raised, cashflow budgets are not met, etc.

3   Have your customers billing and purchasing requirements changed causing more work?

Particularly in the corporate sectors today, billing, invoicing or purchasing requirements are constantly changing. The additional workload created by these changes may not have been factored in properly when calculating your performance budgets.

4  What is best practice according to your industry?

Today there are business organisations which no-longer have billing hour or sales budgets. Instead they have profitability, customer and employee satisfaction objectives. Have you reviewed whether those practices may lead to benefits for your business, or is management still stuck in the past with out-dated work practices?

In conclusion, the calculation of measurement criteria is part of the process to help create a long-term profitable business. The measurement criteria however must be relevant, and the budget targets set achievable without causing other problems within the business. In addition, performance budgets must not be set in stone and the components of the budget must be reviewed occasionally. After all, the business environment is an ever changing factor for any business today.

May you be today rather than tomorrow 

Kim Radok

kim@creditmatters.com.au

www.creditmatters.com.au

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