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by Alan Hargreaves



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Entries in budgeting (3)

Tuesday
Sep042012

What you are thinking is not what will happen

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The problems with planning.

Do businesses turn out exactly like the business plan? None of mine did. Even my most sophisticated spreadsheets never produced anything like the numbers I forecast. Personal plans were not much different.

Some have gone worse, some have gone better, but none mirrored the profile I had so carefully constructed. The late John Lennon was not far off the mark: “Life is what happens while you are busy making other plans.”

Does that mean planning is a wasted exercise?

I don’t know whether Lennon lived by that quote or was just making an observation.

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Wednesday
Feb222012

Buying into yourself

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Invest in a business, not in a dream

How unfashionable is this statement? The sole mission of any business is to optimise value for shareholders.

Try dropping that into a politically correct dinner party, or, for the really brave, putting it on a placard and joining an anti-Wall St demo.

You don’t have to go that far. Shareholders are hardly flavor of the month anywhere.

Yet most of us are shareholders one way or another. Anyone who has a pension scheme probably holds shares in a bank, whether they chose to or not.

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Friday
Feb252011

Why budget forecasts are always wrong

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Has anyone ever produced a budget that turned out to be right?

I haven’t. Even where the bottom line ended up roughly where I forecast it should be, it got there via an entirely different route to the way my spreadsheet got there.

Take breeding horses. That’s something I do as a commercial hobby. It’s not meant to make a lot of money. It’s more of a lifestyle thing – but it’s not meant to lose money either.

I started my breeding program over a decade ago. It ticks over OK, but not in the way I planned. Yearling prices go up and down regardless of the quality of my pedigree planning. Prices have been entirely unpredictable.

No one forecast the equine flu epidemic, which quarantined my broodmares and meant I couldn’t breed anything that year.

Stallions go in and out of favour. It’s a good year when I’ve got offspring from the popular ones; not so good the other way around.

And that’s all before I have factored in the Australian dollar for overseas demand, paddock accidents and vet costs, plus the performance of past progeny –  just to mention a few other variables.

This all about business risk. You can’t eliminate it. You can only manage it, and you can only make robust forecasts if you constantly stress test your assumptions accordingly.

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