For any organization, a budget, whether done annually or conducted throughout the year in the form of rolling forecasts, is a critical component for success. Any successful budget must connect three major elements – people, data and process. A breakdown in any of these areas can have a major impact on your results. How do you bring together the 3 essential elements of a budget? Here are some tips.
A budget can’t be created, at its very foundation, by anyone but a human being. Your people are essential. An unengaged individual, or one who is not accountable, is likely to create a substandard budget. How do you keep them connected? Make sure to, firstly, provide reasoning behind the task. If they understand the importance of the budget, and their role in creating it, you then give them motivation to provide accurate contributions based on effort. Give them time to build a quality budget – don’t just hand them a template without direction and expect them to find time in their schedule to complete it.
Obviously data is just as important as the human element – you can’t create a budget without raw numbers. There are several sub-elements that are key here, namely detail – try to capture as much detail as possible, drivers – examine everything that drives your cash flow, external information – provide any outside information that might be useful to the contributors or reviewers, and timeliness – make sure data is as up-to-date as possible.
Once you have your people and your data, your process brings everything together. A process that is inflexible or outdated means your end result will likely be subpar. There are several factors that help to perfect a process. For example, how easily can the people involved access the system, data and components they need to do their job? How secure is the information? How often are the numbers being reviewed/amended? A process that makes sure that these factors are addressed will lead to a budget that reflects current trends and current company funds and predictions.
When it comes to budgeting and forecasting, ensuring that these 3 essential elements of a budget work in complete cohesion is the only way to garner real financial truth. You can’t expect one to function without the other two – you need all three to achieve an ideal business budget.
At True Sky, we strive to connect the 3 essential elements of a budget to ensure promising end results. Find out more by visiting www.truesky.com today.