Whether we like it or not, budgeting season is right around the corner. It begins as early as August, with finance teams hoping to wrap up the annual budget before their set yearly deadline, typically in December. The importance of the budget cannot be overstated. Companies need to set plans and identify opportunities that will keep the business operating, as well as accelerate profitability. The accuracy and efficiency of the budgeting process are critical to organizational success.
Now is the time to get ahead. Organizations can take steps to make the actual budgeting process less of a headache than it usually is. Preparing now can improve departmental collaboration and drive a more efficient process overall, here’s how.
- Implement the right tool for the job.
As a finance professional you are swamped trying to analyze budget data, so the idea of implementing FP&A software is not on your radar – but you know it’s the solution to your current budget problems. Forward-thinking businesses have realized that modern FP&A software solutions are better suited to handle the task of budgeting. High flexibility, dimensionality, process control, collaboration capabilities, and scalability are aspects that are available in today’s budgeting, planning, and forecasting softwares – something that was nonexistent in those 20 years ago.
Many of these solutions, which may be installed on-premise or in the cloud, use Excel as a front-end for data entry, reporting, and analysis. Some of these products are part of a more extensive system that integrates budgeting, planning, financial consolidation, and reporting. This has several advantages, such as the ability to swiftly seed predictions with finished actuals and see the budget with prior year actuals.
Implementing the right FP&A tool today is critical to having a meaningful and successful budgeting cycle. Before it gets too crazy, sit down with the team and have an open and honest conversation. You can prepare now! And there’s no doubt you’ll thank yourself as you work towards completing your annual budget.
- Don’t get hung up on the details.
Many organizations have come to the conclusion that performing thorough budgeting for hundreds of line items is not worth the time and effort. Forward-thinking businesses are focusing on their key drivers – the material line items that truly drive the business. Then they are using driver-based planning techniques to calculate supporting line items. These techniques are often applied in areas such as call center staffing, sales forecasting, calculating travel, and other employee costs. If business units require a more granular level of budgeting and forecasting than corporate, look for a planning solution with extensible dimensionality that enables varying levels of detail across the enterprise.
- Adopt agile planning techniques.
In fast-changing markets, managing a business based on comprehensive, static budgets that become obsolete soon after approval is not the ideal method. An emerging best practice being embraced by many organizations is to use the annual budgeting process to set initial targets, then update budget assumptions periodically to re-forecast full-year results, and make mid-course corrections in resource allocations as required to achieve financial goals. The key to this “continuous planning” technique is the growing adoption of rolling forecasts, which extend 6-12 months into the future and provide visibility into periods beyond the end of the fiscal year. This method permits more frequent and precise forecasting and gives a head start on the budget for the following year.
- Automate data collection.
The majority of finance professionals will agree that gathering data from across the organization is a time-consuming process, which most of them don’t look forward to. Organizations tend to store data in a blended mess of systems and isolated departments, which turns the budgeting process into a difficult one. There is always the possibility of human error when data is transferred from one system to another which is why before efficient planning can begin, finance experts must spend hours accumulating and reconciling data.
Today’s modern budgeting and planning softwares enable a variety of internal systems including GL/ERP, HCM, CRM, CPM, and others. When it comes to seeding the annual budget with the prior year’s actual results, this approach can save time and effort while also improving accuracy. It can also aid in reporting and comparing the latest actuals to the original budget or forecast. Unified software solutions that integrate budgeting and planning with financial consolidation and reporting improve financial and management reporting efficiencies and consistency greatly.
The Bottom Line
Adopting these best practices now is critical to surviving the annual budgeting cycle that is right around the corner. But it’s also crucial for maximizing business performance and thriving in the unstable global economy of today. With spreadsheets, email, or outdated programs, adopting these best practices is practically impossible.
For instance, executing a rolling forecast cycle monthly will be a fruitless endeavor that provides little benefit if an iteration of your budget data collection, consolidation, and reporting process takes three weeks or more to complete. The integration, automation, flexibility, and control needed to embrace more dynamic and agile planning techniques for today’s volatile markets are provided by modern budgeting and planning software. Organizations that have implemented modern budgeting and planning solutions, and adopted the best practices highlighted above, have seen significant business benefits.