Companies must take control of their finances in order to survive the current economic uncertainty and ever-changing market conditions. One of the cornerstones of ensuring financial health is making certain you’re employing best-in-class budgeting strategies.
It’s a carefully and accurately constructed strategic financial plan, across all departments for a specified period of time, concerning the revenues and expenses of an organization. Cash is one of your most important resources and must be used correctly.
Budgeting should serve as the business’ guideline and roadmap for achieving leadership’s objectives and goals. It should also project, manage, and provide data intelligence into financial status.
Understanding your numbers is knowing your business. You must know your business in order to make the best business decisions. The top five most critical reasons for budgeting are:
To clearly define business objectives – including profitability, cashflow, forecasting, etc.
To determine the sources and volumes of sales revenue.
To understand production expense requirements – labor, materials, overhead, etc.
Knowledge of performance and efficiency.
To realize targets – monthly, quarterly, and annually.
No longer can an organization afford to utilize the old school method of “incremental” budgeting, whereby previous years’ results are adjusted by a percentage, business leaders then cross their fingers, and ultimately just hope for the best. This method delivers too many inaccuracies, as it doesn’t account for changing market conditions, and is more susceptible to misuse by departments who over-budget simply to be safe.
Also, in this method, expenses are often not linked to any form of activity. Therefore, they are merely guesstimates. For example, projected increases in sales will require more materials and labor. A change in efficiencies of production will cause a change in labor hours. These older methods and systems of budgeting require that any changes have to be recast manually. These processes take too long and are too costly of an exercise.
The best companies with the best budgeting practices are those who’ve adopted more meaningful methods of budgeting, along with innovative technology solutions, to support automation. To ensure your organization stays ahead of the curve, you should:
1. Integrate Top Down Bottom Up Approach – this method couples corporate strategic goals with the ability to operationally manage and adjust projections, while using pertinent field knowledge of customer strategies and critical business drivers. There is shared responsibility for budget refinement between managers and employees, with increased involvement, along with improved efficiency and accuracy. The understanding of how business drivers affect one another is vital in decision making.
2. Ensure Thorough Planning & Clear Communication – you will need buy-in and input from all key decision-makers. This requires important planning and communication within and between all departments.
3. Define Clear Goals – these must be realistic and attainable.
4. Utilize A Budgeting Technology Solution – this is a critical component of allowing you to save time and money in the budgeting process. Here’s how it revolutionizes the way you budget:
Companies that utilize all of these strategies have a 53% greater competitive edge and improved flexible management capabilities. You no longer have to waste time trying to find your data – let a technology tool, like Synoptix, do the heavy lifting and deliver your data easily, so you can quickly make the best decisions for your organization.
Jeana has been in the software industry for 13+ years specializing in ERP reporting solutions. She has decades of experience in creative content development and marketing and enjoys exercising, traveling & spending time with her husband & twin boys.
Download Spreadsheets-The Corporate Secret Killer & What to Do About It to better understand its inherent errors, how to manage quality control & overconfidence, with detailed solutions on improving spreadsheets in financial reporting.
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