Whether you like it or not, at some point of the year, you will need to start budgeting and forecasting for the next. What a lot of companies fail to realize, is that it doesn’t have to be as painful as you think. By implementing a company wide set of best practices, you can ease the stress of your employees and maybe even, get them to enjoy the budgeting process. Here are our best practices for getting your budgeting and forecasting on track!
The Burden of Budgeting
No company can avoid the dreaded budgeting process or expect the process to be easy. Although some would claim that the process of creating a budget can bring one joy, there is more than just planning expenditures to be gained.
What Budgeting Brings
The budgeting process allows your organization to look critically at the goals of your company, draft action plans to achieve them, and then convert the ideas into financial terms. This process allows you to look at the course of a year in advance, as well as provide vital information for key stakeholders.
Being able to describe the way that an enterprise is going to grow and be sustained is an important benefit accruing to the budgeting process.
The first order of business is ensuring that you have defined goals by adopting a methodology for your budgeting process that meets your company’s needs. Take the time to ask yourself:
- Who should be involved in the process?
- How detailed is the process to be?
- How often will the process be carried out?
Here are our 3 Best Budgeting Practices:
1. Make Budgeting a Part of Your Business Culture
Company-wide commitment to the budgeting process is necessary for success. Eliminate the negative thoughts of budgeting from your company’s mind! It starts with the senior management setting achievable and realistic goals. This is followed by middle management creating action plans that are measurable and linkable to performance. These standards are passed down to the last employee, in hopes of producing a strong company culture and vision.
2. Synchronize Operating and Strategic Plans
Budget development is the most effective when linked to overall corporate strategy. It is crucial for senior management and finance to work together to create long-term strategic plans that align with major initiatives and goals. Because the strategic and operating (budget) plans have to be synchronized and related, it is critical that the operating plan not be drastically different from the strategic plan – ideally the operating plan should flow from it. (This is where a centralized budgeting solution can be helpful.) If these are not in sync, line managers will be unable to work towards the same goal upper management has envisioned.
3. Allocate Resources Strategically
Resource allocation is the next priority. In any company, there is competition for resources. In most situations, there is often more work to be done than resources available. It is fundamental to prioritize key strategies and then allocated resources as needed.
In a majority of companies the actual capital and the operational expenses that are needed for a business will generally be more than what available resources the company has. As a result, it is fundamental to keep resource allocation on supporting key strategies by using design procedures.
In almost any company the actual capital and operational expenses of each function or business unit will often be in excess of resources available. It is therefore absolutely critical to design procedures that will keep resource allocation focused on supporting key strategies.
Successful strategies include:
Review of capital and operational budgets together: this allows managers to see how changes in one budget can affect the other.
Have a sophisticated approach to evaluating proposed budgets. A common procedure is to take into consideration the company’s weighted average cost of capital. Alternative approaches assess the degree of risk of competing action plans, expected developments in interest rates and the costs of deferring action.
By implementing these best practices and designating teams to examine the plan, your company can achieve its strategic goals.
Management systems can improve the speed and efficiency of the budgeting process. Looking for a better budgeting solution? True Sky offers custom designed solutions than can greatly improve your company’s performance. Contact us today and learn what True Sky can do for your business.