When it comes to operating your company as a whole, the focus is on achieving realistic, actionable goals. Regardless of company size- these goals typically focus on growth and company maturation.
But as a business leader, your primary focus must be on having the right resources to support these goals. Whether you've just decided to start your business or you've been up and running for some time, you know that your budget and allocating that budget properly is integral to everything you do.
The best way to support your company's goals, growth, or otherwise- is to utilize the concept of strategic resource allocation to your advantage.
What is Resource Allocation?
Resource allocation is the process of managing and allocating assets to support a company or organization's strategic goals. These resources can be anything from money to talent to management focus and attention.
In this article, we explore the importance of strategic resource allocation and how to adjust your resource allocation needs to evolve over the lifespan of your business.
The Importance of Strategic Resource Allocation
Resource allocation is a crucial aspect of your business with a significant impact. Your business requires the right tools and resources to succeed, and your employees need the right tools and resources to perform their jobs effectively.
A study by McKinsey found that "companies that reallocated more resources earned, on average, 30 percent higher total returns to shareholders annually."
Running your business with precision and efficiency will depend on your understanding of your "significant levers." Specific KPIs, like leads, bookings, billings, and other growth factors, will impact your assumptions and guide you in your business planning.
Benefits of effective resource allocation include:
- Improved efficiency
- Reduced time spent on projects
- Increased employee satisfaction
- Diminished workplace stress
- Achievement of goals
- Higher employee retention rates
However, properly allocating resources is often easier said than done. Every day, CEOs are faced with the same dilemma: how should resources be used within the company?
Ongoing Resource Allocation as a Best Practice
When you take the time to understand your company and its resource needs, you become well-positioned to support growth.
However, don’t get too comfortable. While you may have the right resources in place presently, you most likely will need to reassess them later as you move towards your business goals (and set new ones).
- Early Stage Resource Allocation: When you’re just starting, your resources are likely more focused on adequately allocating funding, talent acquisition to fill critical roles, and functions like research and development.
- Growth Stage Resource Allocation: Over time, your company will achieve its growth goals, and you’ll set new ones. Your resource needs will shift to hiring additional employees, purchasing further training and onboarding tools, implementing processes and procedures, and upgrading production facilities and equipment.
- End-Stage Resource Allocation: Whether you’re preparing to take your company public, sell your business, or take part in a merger or acquisition, you will – once again – need to re-evaluate your resources. This time, your resource needs may include advisors to guide you through the process or new or additional technology and tools to manage and maintain stakeholder relations.
No matter the stage of your business, you’re likely to be faced with requests from department leaders for new software, improved equipment, or additional staff members.
The question then becomes more complex: “How do you determine where resources (whether capital or people) should be used to maximize efficiency and maintain employee “happiness”?”
Budgeting to Support Resource Allocation
Knowing how much of your budget has been allocated to each business function will allow you to reallocate resources on an as-needed basis.
If you need to hire more people or increase your production to accommodate that huge contract, you know you have the money to re-allocate from another area, such as sales and marketing, to meet these new demands.
There are always areas where you can make cuts and save your business money when budgeting. Strategic resources, however, should not be up for discussion.
To put it simply, investing in the right resources is good for business. When it comes to budgeting for support resource allocation, there are five steps to take to align your budget and resource needs.
1. Understand your cash flow.
Becoming familiar with the intricacies of your cash flow and the projection of future cash flow (and sales forecasts) allows you to determine how much you have to allocate. To understand cash flow, visit the article “Cash Flow 101: Tips for Management, Projection, and Long-Term Improvement.”2. Outline your current staff and resource needs.
Determining staffing levels can be tricky for any business owner. But when you know your current business needs, you’ll be able to make educated predictions regarding future staff and resource needs.3. Assess your current budget.
Identify where there is room in your budget for resource allocation. Then, prioritize where those resources will go based on your business priorities. Knowing what your revenue stream is and how much is available to you at any given time will give you the flexibility to quickly and effectively address the unexpected, whatever it may be.4. Develop goals for company growth.
By setting goals on how you want your business to grow and what resources you’ll need to achieve them, you’ll have a clearer idea about where your resources should be allocated in the future. For more on setting goals, visit the article “Does Your Resource Allocation Represent Your Business’ Priorities?”.
5. Align your budget with your goals.
Your budget should support growth and use your resources on areas that can most significantly impact growth to achieve your goals. For example, if you want to bolster recurring revenue, allocate more resources to your sales team to hire more salespeople.Allocating resources is a strategic exercise. While you don’t always have control over the number of resources you have to distribute, you do have control over how to utilize them best. When you work to understand your company’s needs, you can pinpoint where your resources will have the most significant impact.
G-Squared provides strategic financial, accounting, and operational expertise to CEOs and entrepreneurs in Philadelphia, New York City, and Washington D.C.
Read More:
Sales Growth vs. Profitability: What Entrepreneurs Need to Know: What's better? A sales-growth mindset or a profitability-focused approach?
Why It Pays to Utilize a Part-Time CFO: Keep your business flexible in an ever-changing environment with the skillset of an outsourced, or part-time CFO.
Everything You Need to Know About Financial Statement Audits: Financial statements serve as a benchmark of progress in your business and help provide the information you need to pivot as needed.