6-14-10 What is Your Budget?

Every executive has a budget. And every executive knows exactly where he/she stands on spending the budget. No matter what level of executive you are, you will have budget constraints. Which leads me to one of the comments made by my survey participants. Remember I asked each participant what one thing that they wished they had known when they became an executive.

We know from the execution function of the executive skills and traits model that financial acumen is an important skill for the new and/or aspiring executive (1-13-10 Execution Skills -- Now go DO something!). This comment is an interesting twist on that financial acumen skill.

One particular executive said, “I discovered there was a tremendous amount of money needlessly tied up in reserve accounts and a lot of energy wasted hiding/holding on to those reserves”.

Okay, quit shaking your head. We all do it. Somewhere, buried deep in your budget is a slush fund. You “grew up” learning that reserves were required. If you didn’t have some extra funds in your back pocket, how could you possibly survive and pay for any unk-unks? Or how would you fund any unexpected opportunities?

So now you are asking… “are we all wrong? Should we not have reserves?” Well, yes and no. Unfortunately, there isn’t a straight answer on this one.

When is it appropriate? Perhaps when times are good because then the impact of reserves isn’t felt too keenly. Or perhaps when you are introducing a new product, when you can’t possibly have identified all of the problems and hitches that you will encounter. Or, as irritating as it is, when you know that your following year’s budget will be dependent on this year’s budget, including reserves.

You can tell that my survey participant didn’t think reserves were such a good idea. And there are times when he is right. How much time do you spend concealing or defending your reserves? Is it really worth the time and effort you put into it? I’ve seen some executives spend more man-hours defending a slush fund than the fund was actually worth. I just wanted to tell him that he wasn’t being very smart in choosing his battle.

Or have you checked into the overall financial health of the company lately? If your company is one of the companies that is laying off, I would suggest that you pony up your reserve immediately. There isn’t any reserve that compares to saving jobs. Or if your company is borrowing heavily just to stay afloat, then again, cough up the reserves.

Be smart about your slush fund and you won’t damage your company or your ability to survive and prosper.

Cheers!