Simply put, the corporate budgeting process exists to provide your company a plan for its spending for the year to come.
Yet, for a seemingly-vital part of keeping business healthy, many companies fall into a routine of creating a yearly budget, only to forgot or abandon it weeks or months after they’ve created it. Such a commonly-shared experience is rooted in a misconception that budgets are a one-time roadmap your company should follow as closely as possible throughout the year. (Hint: They’re not.)
As the end of the year closes in, the corporate budgeting process has come into focus to lead your company into the new year on the right foot. By staying on top of your budget–and following a procedure for best using it throughout the year–your company will be best suited to not only track its finances into the new year but also best plan for the future.
How to keep your budget on track
Base your budget off a solid financial model
Budgets, like your business, are meant to ebb and flow depending on a variety of factors–from political decisions to market events, supply and demand and investments–and should reflect thoughtful predictions and analysis based on what those factors will have on your company’s bottom line.
This starts with a pre-budgeting phase of creating an accurate financial model. Corporate budgeting encompasses the output of your budget forecast financial model and represents your target expenses and revenues for the months ahead – this is all to say that solid corporate budgeting starts with a solid financial model.
Create intervals for revisiting and updating your budget throughout the year
One of the clearest steps to making sure corporate budgeting efforts don’t go to waste is to create a timeline for revisiting and updating your budget.
Start with what you can control – time. Will you visit your budget on a monthly basis? Quarterly? Bi-annually? Regularly updating your budget allows for your company to know that it has its best foot forward when approaching the next quarter.
Aside from time, your company will likely see changes in economic, political and social climate throughout the year that will factor into how your corporate budgeting procedure takes place.
For example, the amusement tax in Chicago–a tax on patrons participating or witnessing amusing events–was recently subjected to owners of PlayStation video game consoles. Though the tax may be a drop in the bucket for Sony (as well as companies like Netflix and Spotify whose customers are also subjected to the tax), small- and medium-sized entertainment-focused technology companies that find themselves in similar situations would be wise to make adjustments to their budget to account for consumer behavior.
Consider revisiting your budget if there are events and occurrences will likely impact your business; planning for best- and worst-case scenarios, or evaluating after the fact, will help your company gauge its budget variance at that point in time.
Things to consider when creating a budget for next year
Consider how long it will take you to compile your budget
Creating a variable financial model, then creating allocations for your new budget, takes time. Paired with the hectic end-of-the-year holiday season that consumes many businesses, time may not be the most available resource, so starting the budget process today, or contracting the corporate budgeting process to a finance professional, will ensure you don’t start the new year already behind.
Consider the parties providing (and seeing) information during the budget-making process
Through budgeting software–be it a formulaic Excel sheet or a cloud-based budget app through Salesforce–making sure the information gathering place is easily accessible and clearly labeled is necessary to make sure your budget-making process is transparent and accurate.
Assign permissions to department managers and ensure that changes to the budget are clearly trackable to make necessary revisions down the line.
Consider the information you’ll need access to in order to make an accurate budget
Making a checklist of hard-copy documents necessary to build your budget, or creating a permission hierarchy through your cloud-based data management system, will make it easier for your budget-making team when the time comes to make your budget.
Determining your company’s budget allocations
A traditional budgeting model builds on your company’s previous year budget and determines allocations based on each department’s spending habits. It’s a widely-used method, and is extremely time effective if you’ve created budgets in past years.
But, if you’re looking to upend the corporate budgeting process for your company, with a particular focus on allocations, consider zero-based budgeting, or the process of justifying every line item on your company’s balance sheet to appeal to a larger company goal.
Compared to traditional budgeting, it’s a more time-consuming and effort is required from more parties within your organization, but the results–large companies that implemented zero-based budgeting in the past few years saw average savings of $280 million each–have brought small- and medium-sized business owners to the ZBB table.
If your company isn’t looking to completely overhaul its budget-making process, budget calculators and budgeting software have tools built in to help you build a foundation for your budget – if you know how to use them.
Overwhelmed? Seeking additional help with your corporate budget
Bandwidth and time – if your company has both, the budget-making process has probably already been delegated within your team and is well underway. For the rest, the task has probably fallen by the wayside.
Outsourcing your corporate budgeting with a fractional financial analyst won’t take away from your already time-strapped company, though it will put your company on the best foot forward heading into the new year.