Budgeting Strategies From the Battlefield

Helmuth Karl Bernhard von Moltke (October 1800 – April 1891) would have made a great businessman.

Moltke was a German Field Marshall and the Chief of Staff for the Prussian Army for more than 30 years. He is regarded as one of the great strategists of the nineteenth century.

Moltke’s main thesis was any strategy must be seen as a system of options: You could only plan the start of a military campaign — it was impossible to predict the outcomes. Two main statements can best sum up his strategic thinking:

  1. No plan of operations extends with certainty beyond the first encounter with the enemy’s main strength”.
  2. “Strategy is a system of expedients”.

It is a mistake to think Moltke did not plan because his plans would have to change.  In contrast to this common assumption, Moltke made very detailed plans taking into account thousands of variables.

So why would Moltke make a good businessman?

I wish I had a dollar for every businessperson who told me they don’t do a budget or forecasts because it all changes anyway. The error is thinking a plan and budget is a once-off static document.

Business management is just like preparing for battle. You need:

  • Clear knowledge of your current position
  • A clear objective
  • To know what available resources you have like stock, equipment, labour, working capital, etc.
  • An understanding of your controllable risks and your uncontrollable risks

Based on this information, you make detailed business plans and equally detailed budgets to ‘Ground Truth’ your business plans. All of your wins and losses will be measured in dollars, not activity.

Like Moltke’s thesis states, your plans will not survive first contact with your enemy. In the case of small business, the enemy could be your customer, global markets, staffing, competition, health and many more. When planning for battle at the beginning of this year, I strongly encourage you to do the following.

Make a number of alternate plans

It’s a good idea to do a minimum of four budgets. You can make the first one then copy it with variations. Your four budgets work like this:

  • Baseline budget – This is the most probable and the one you take to the bank.
  • Bad year budget – Plan for low sales and a variable dollar.
  • Good year budget – Work out what would happen if you get big contracts and high sales.
  • Sand box budget – Play with scenarios so you don’t stuff up your other plans.

To quote another great leader,

The more you sweat in peace, the less you bleed in battle’.

– H. Norman ‘Stormin’ Norman’ Schwarzkopf, Jr., General in the first Gulf War

Review your plan against actual financial performance

A monthly ‘budget to actual’ review will be your most powerful tool in monitoring the living, breathing, reality of your business. Compare it to your plans and make timely adjustments to either mitigate losses or optimise gains.

Stormin’ Norman was also asked how he knew when it was the right decision to send 40,000 men into battle. He replied:

“You don’t. You do your planning based on the best information you have at the time and then you commit. If it is wrong, you adapt quickly and keep making decisions until you get it right”.

The benefit of extra planning before the year starts is a clear mind. You will make better operational decisions for your business as a result. In the heat of battle, your cortisol and adrenalin levels are elevated resulting in slower and less-effective thinking. Big mistakes can be made.

Use proven strategies to win at business

Run your business with the same strategies Moltke and Stormin’ Norman used when faced with battle. Understand Moltke’s opinion that, “no plan survives first contact with the enemy”. Make lots of alternative plans and change them as the conditions of the battle change.

Reep cash-flow forecasting software has been designed specifically to help you plan and manage risk just like Moltke. With a combination of an up-to-date accounting system and the use of Reep budgeting tools, you can approach each year with confidence you have done everything possible to plan for success. The best part is you will have a system to actively monitor and manage change.