Managing a Department Budget- why non-financial managers need to look at the figures

Spreadsheets, budgets and Profits & Losses are for management, accountants and finance departments. As non-financial managers, you need to focus on your team and deliverables, and let the experts worry about the numbers. Unfortunately, this couldn’t be further from the truth.

Profit margins are shrinking and companies have to find innovative ways to stay afloat. This makes budgets and profit and loss everybody’s problem – including yours!

Knowing basic accounting is no longer a ‘nice to have’ asset – it’s a must have. The ability to run your team within a budget and being able to justify your spend, will actually determine your team’s survival in the long term. So what does knowing basic accounting look like?

The first thing to do is get an understanding of the key figures that are important to your business and stakeholders. Obviously it’s profit – but what specifically? What are top line and bottom line costs that the company is monitoring?

1. There are three main financial statements that you need to know and worry about – Balance Sheet, Profit and Loss (income) and Cash Flow. These three documents will give you an overall understanding of where the company is at and how it is performing. These numbers will also help you determine how your team can add value to the organisation.
2. Managing a team means decision making, and this involves data and analytics. In order to make informed decisions you need numbers. These numbers should ideally include budgets as well. Any action you have taken needs to have a cost benefit analysis attached to it.

Let’s take a real life scenario. As a department head you are probably required to submit annual strategic plans and bi–annual reviews.

If you are in the process of developing your department’s strategic plan, then apart from annual business goals or KPIs you will need the following, if you want the plan to be approved:-

Revenue Projections – with projected growth that is based on the annual business goals and team KPIs.

• Fixed Cost – employee salaries, infrastructure costs, etc. Basically recurring cost that you incur every month to keep the lights on.
• Variable Cost – campaign management cost, over time pay, and other costs that need to be budgeted in during various times of the year.

Once you have all these details in place, you will need to play devil’s advocate with your budget. What are your department deliverables? What are the goals? What services do you offer to the organisation?

Play out a couple of ‘what if’ scenarios so that when the board queries your numbers, you have the data and analytics to back it up. A famous question that CEO’s like to ask managers of sales teams is – “If I double your budget can you double your sales projections?”

If a similar question were posed to you, what would your answer be? Once you have the analytics to back up your department budget, then it’s a matter of priorities.

What is a ‘must have’ expenditure and what is a ‘nice to have’?

Know you are almost ready. The next step is to use a simple budgeting tool (such as Excel) to present your projections, numbers and goals in a friendly manner – via charts and graphs.

Of course it is important to note that plans are not iron clad. Your budget will, from time to time, have variances. But planning will ensure that these variances are kept to a minimum within your department, and even when they do occur, they do not adversely affect the bottom line of the company.

In case you still aren’t convinced on the importance of budgeting practices as a non – financial manager; let’s look at an example close to home. Stevi Lowmass, the Founder of The Camel Soap Factory, started just six years ago from the shed of her Dubai villa. A first time entrepreneur and previously General Manager of a software company, Stevi quickly learnt the challenges of a owning a SME – especially cost vs. benefit.

This is just one example, budgeting can come in handy in any situation, even in personal financial management.

If you would like some in depth knowledge, join us at ISM for the Finance for Non Financial Managers workshop. Register today!

Are you spending more than you are making? This is the absolute basic of budgeting for any start-up or non-finance manager in Dubai. Can you honestly say you understand where all the money coming in is being spent? And do you know which areas need less money and which areas require a boost?

At the heart of all businesses is the need to earn enough money to cover all the overheads and make some profit. Without a clear plan to ensure this happens, a business will obviously flounder. But assessing how this happens, and where to make changes to increase profitability, requires some knowledge of financial terms and how to implement them.

Here are some staples of a Finance Director’s daily routine. Understanding not only what they mean, but also how you can use them, will help a manager create a healthier department.

Cash flow Analysis: Shows where (and more importantly when) the money is coming into the company and how it is being spent out of the company.

Gross Margin: If it costs you 12 dirhams to make a product and you sell it for 25 dirhams, the gross margin is 13 dirhams.

Balance Sheet: This is a snapshot of your company’s, or your department’s financial situation. It shows the assets and liabilities on a specific date and can be used to show the worth of the company and to analyse its management.

Break Even Point: This is where your total income equals your total expenditure.

Income Statements: An important report analysing a company’s revenue and expenditure. This is also known as the profit and loss statement.

Return On Capital: Is the measure of how a company uses its resources to generate profit.

Key Performance Indicators: These help companies keep track on the success (or failure) of defined goals and targets.

Working capital: Is the money available to a company to pay the day to day bills.

It is the job of a department manager to do more than just know what these terms mean. A thorough understanding of how to read a cash flow analysis alongside the income statement, will allow you to plan better. You will see where the money is working hardest and where it is disappearing into a black hole of inactivity.

So instead of winging it every month, you’ll be able to place a strategy behind your department’s work, and ultimately increase profitability.

Without proper budgets behind purchasing and marketing decisions, a department can quickly descend into chaotic spending patterns that not only make it a drag on the company as a whole, but also puts a question mark against whether you are capable of running it properly.

If you are struggling to keep a tight rein on your business or department budget, it’s time to think about a financial course in Dubai aimed specifically at non-financial managers. The Institute of Sales and Marketing has a highly knowledgeable team of experts that are here to help you. On our Finance Management for Non-Financial Managers course, you will gain confidence in your abilities to effectively oversee budgets and understand basic financial principles.