As we approach the end of the year, there’s one word on many executive’s minds: budget. With only three months until 2018, most organizations are working overtime to reconcile profits and losses, hit end of year targets and forecast for the year ahead. In the scramble to get all financials in order, it’s no exaggeration to say that current budget methods are time-consuming, not to mention the fact that they’re often rife with manual, time-intensive and inefficient processes.
And while it may be a little early for budget-friendly New Year’s resolutions, businesses can still take advantage of the remaining three months in 2017. Here’s how to take your company’s budget from outdated to optimized before anyone says, “Happy Holidays.”
Plan in Q1, then Q2, Q3 and Q4
We recently surveyed 250 US-based business owners and managerson their attitudes and practices related to the budget process today and found that 55 percent of respondents say their companies only set budgets once a year. The problem is that most businesses today are constantly changing, with a variety of expenditures in flux. It’s tough enough to get New Year budget projections right to begin with, and as the research shows, it’s rare that organizations adjust budgets when things don’t go according to plan.
In our connected, digitized world – where almost everything happens in real-time – a “set-it-and-forget-it” approach to budget seems out of place. Instead, companies should take a rolling approach to budgeting, which encourages organizations to treat budget as a dynamic tool. Set a budget in Q1, and re-visit it mid-quarter. Review it again in Q2, and adjust targets and allocations as needed. Repeat the process. While it may seem more time intensive, rolling budgets provide businesses with much-needed agility on-the-fly as priorities shift while also creating the added benefit of not playing catch up at the end of the year.
Use discretion with discretionary spend
How much of your company’s budget is allocated to discretionary spend? If you’re unsure of the answer, don’t fret – 25 percent of the executives we polled have no idea what percentage of their corporate budget goes toward discretionary spend. Narrowing in on discretionary spend (spending that falls outside of fixed costs) can be particularly impactful for an organization, because these costs represent the expenses that can be cut or dialed back if needed to meet financial goals.
In a typical small to medium-sized business, discretionary spend accounts for up to 25 percent of the company’s budget, highlighting a significant opportunity for an organization to land closer to the bottom line if these specific expenses are well-managed. So, how should you do it? Adopt more agile business solutions that promote real-time visibility and allow each member within the organization – from business owner to budget manager and employee – to track, adjust and communicate about spend as it happens.
Keep the right tools in your budgeting toolbox
For 43 percent of organizations surveyed, annual budget planning and forecasting takes place within legacy tools, like Excel spreadsheets, that require manual updating. All too often these static documents only get revisited once or twice a year at best. What’s more, according toour research, 88 percent of survey respondents don’t use budgeting software at all. For companies operating without the proper tools in place, these budgets are often out-of-date within a couple months. The ripple effect is significant: without timely data, forecasting for the following year with a high level of accuracy and confidence is nearly impossible. As a result, 64 percent of respondents cited that their businesses go over budget at least sometimes, which can misalign future budgets for quarters to come.
Since the end of the year acts as a time for nearly all businesses to revisit budgets and plan for the year ahead, it’s also the ideal time to evaluate the current processes in place to help identify where a new approach may be needed. When it comes to budget, the majority of today’s SMBs are ripe for change and must consider trading in their outdated, time-intensive approach for agile solutions that meet their ever changing needs.
To the Point
By arming your organization with the right tools – those that allow for real-time insight into spend and the ability to adjust budget as needed – employees at all levels will feel empowered, and your budget will thank you, by going from static to streamlined.