The role of budgeting has changed over the years. The concept ‘Beyond budgeting’ puts more emphasis on forecasting, but since the idea of active forecasting has not yet fully taken over, budgeting is still very important. By combining budgeting and forecasting, you can put down a strong foundation for your business. But how can you fully utilize everything budgeting has to offer? In this article, we will explore some options to help you on your way.
For many companies, the budgeting process is done once before the new financial year begins. It is common to measure against this budget and against last year, throughout the following year. But is this good enough in a world that is changing at an ever faster pace?
This is how you turn your budgeting into a more efficient management tool:
- Plan ahead
The goal of a company is to deliver on the targets that have been set and to deliver growth. Growth contributes to the development of the company and provides greater room for maneuver both in relation to further growth, but also to meet downturns and crises when they come.
By keeping your accounting well organized and planning ahead for your expenses, you ensure that you are always one step ahead. Budgeting provides you the overview you need, so that you can make a battle plan for your company. Unexpected expenses can happen, and that is when it pays off to be prepared. When you create good budgeting habits, you will be stronger when facing your challenges.
- Utilize your resources
The period we are now entering can become more predictable if we take action as early as possible based on the number we have before us. This is a powerful management tool. It gives you a clear, realistic, and achievable goal to reach towards. This makes it easier to communicate internally in the company and have a common understanding of what is required of us.
Budgeting is useful no matter the company size, but a big company may have very different needs than a medium or small company. Larger revenue requires more complex budgeting, for more departments and a higher number of employees. For a smaller company, the process remains the same, but on a smaller scale. Use what is needed for your company and the goods or services you sell.
It is very common to consult with the one delivering your budgeting services, so that you can arm yourself with useful advice from experts, based on the specific needs of your business.
To deliver on growth, we need to put the list high. A challenge arises if the demand is far above what we have budgeted for. Do we then manage to set the list even higher to deliver on the opportunities that arise? Different sets of problems arise if there is a sharp fall in demand and the budget becomes unrealistic. This can demotivate, "we can not manage the budget anyway", which can lead to the company underperforming. This is a particular worry in industries with big and unforeseen fluctuations.
The most important thing when problems arise is that the team can communicate well, that a plan can be established, and clear tasks given to everyone in the team so that the problem can get solved. Good budgeting means adjusting for mistakes and sudden fluctuations. With such conditions we have had the last few years it has become harder to foresee development. Having a fallback option, and knowing what to do if the worst happens, is achieved with thorough communication internally with the team, as well as knowing that you can all trust each others’ knowledge.
- Follow and react (on deviations)
We have tools in budgeting that allow us to manage the performance of the company, given the various situations described above. One possibility is to use a revised budget, either in the event of an abrupt change in the situation or that this is done systematically where we follow the quarter, term or month. Then it can be measured against the original budget, last year, and the revised budget.
- Keep looking ahead
Another option is to use forecasts. Then we keep the budget, but use forecasts that are constantly doing the work in the background. Based on the forecasts, we get a clearer picture of the period ahead of us and can quickly implement measures suitable for your business.
Azets delivers simple budget tools to those who only use one budget throughout the year and do well with this. We can also deliver more advanced features through our budget tool Navita, which lets you work with revised budgets and multiple versions of forecasts.
Read more about Navita and how we can help you.