The plaintive voice on the other end of the line said, “The trailer tyre is all wobbly, please come and sort it out.” My wife had left the farm early that morning to do the monthly shopping, with the trailer in tow. I thought, “Oh heck, there goes my day.”
“Okay, just tell me more. What does it look like?” I asked. Now, a trailer wheel is a simple thing. There’s a tyre fitted to a rim. It’s bolted to four studs protruding from a hub, which rotates on bearings on a stub axle. “The tyre looks like it’s coming off, and there’s lots of oil underneath,” she said, “also the things sticking out look all pointy.”
Oil! Where did that come from? Maybe the car was the problem, not the trailer? And what were the pointy things? Maybe we needed to call the vehicle recovery unit. After 10 more frustrating minutes on the phone, I was no wiser. I ended up taking enough spares and tools to rebuild the trailer. My arrival was tense, but she was on the road in 10 minutes, and by then she was talking to me again.
Here we were both speaking English, but without understanding each other. It’s often like this in business too, and it’s a mess. Perhaps most problematic is the language of the finance and accounting arena, so let’s talk about the language of budgets: A budget is a detailed financial plan for a specific future period. Usually it’s a year ahead, but not necessarily. The crucial thing about a budget is that, once finalised, it is cast in stone. There’s no going back – once signed off, that’s it. I have seen more confusion caused by making changes to the budget than my wife and I had about the broken-down trailer. A budget draws a line in the sand. It makes no sense to move the line when things are going better or worse than expected.
As the actual numbers roll in, they will be different from the budget. If they have a positive effect on the business, then they are “positive variances”. If negative, then they are “negative variances”.
Keep track of where you are in relation to budget by making “forecasts”. Don’t make too many, and give each one a clear name, like the month in which it is made. We used to make three per year, one each quarter called “forecast one, two or three”. It worked and we always knew how things were turning out for us compared to the budget.
Develop your team’s understanding of the words “budget”, “positive or negative variance” and “forecast”, and you will have created a GPS for your business. You will know exactly where you are and which way to go to get back on track.
Call Peter Hughes on (013) 745 7303.