How to improve your business budgeting processes

It’s no secret that completing the annual budget is a headache for CFOs.

The entire process is extensive and time-consuming. Traditional budgeting tools make sharing between team members complex and cumbersome. Transferring information between Excel spreadsheets and teams leads to unavoidable errors. Frankly, you can spend a lot of time putting together a document that may not even be useful in the end.

Fortunately, there are better ways to budget and build collaboration into the process. It starts with a single source of truth where team members can pull in the previous year’s data such as cashflow, expenditures and income statements. Having access to common, relevant data ensures the finance team is working with the correct information and streamlines discussions as they share with other contributors. This makes modelling and comparing scenarios easy to repeat as part of your decision making.

Techniques that improve the budgeting process

Collaborative budgeting may not look like the traditional process you currently use, and it may take some trial and error to learn how to make it work. The following techniques can help improve the process:

• Driver-based budgeting: Your detailed data gives you deeper views into what’s happening within the company, leading to more effective driver based budgets that are easier to execute and monitor. Use it.
• Side-by-side comparisons: Stop emailing spreadsheets back and forth between teams. A robust platform makes it possible to share information in real-time for more streamlined planning processes.
• Rolling budgets: A rolling budget may be more responsive to your business needs, allowing you to adjust the budget as needed in response to trends and external factors (think Covid).
• Protecting data: Not every team member needs to see every line item. Help them stay focused by hiding sensitive data like remuneration and bonuses from select team members.

Tips for building collaborative FP&A into budgeting

No single budget approach works for everyone, as they all have their own pros and cons. Whether you choose a date- or zero-based budget is a matter of preference. It’s more important that you have access to the information you need, such as fixed costs and EBITDA from previous years. Here are more tips to help you toward the goal of collaborative budgeting.

Update your budget as needed

Budget understatement happens. That’s just one reason to consider revisiting and updating your budget more than once a year and comparing it to your forecast. Revising your budget throughout the year helps the budget work for you instead of forcing you to work for the budget.

Keep two budgets

Consider keeping two budgets: aspirational and baseline. This can be especially useful when you have budget deviations in a given year. Use the aspirational budget to reflect what you’d like to see happen in the coming year and the baseline budget as a guide.

Allow for change

You need up-to-date information for effective budgeting. The Covid pandemic and more recent negative market trends will likely mean you need to continually revisit your budget and re-forecast. However, whatever you saw happening in your business during 2020 and 2021 may not reflect what will happen in 2023 and beyond. Having the ability to compare budgets based on live data from your accounting software against pre-pandemic fiscal years will help with your budget planning.

To find out more about building collaborative FP&A into budgeting, download this ebook, Modern Financial Planning and Reporting.