If you’re like most of the people who participated in a survey we conducted earlier this year, you probably think your company’s budget process is perfectly adequate, if not pretty good. Over 75% of the business owners and managers we polled gave their companies’ process a grade of A or B.
The overwhelmingly positive grades surprised our team at Center, especially given the fact that these same respondents told us that their companies use outdated and static tools, update their plans infrequently, and regularly go over budget at least some of the time.
How to explain the discrepancy? We attribute the positive grades to a certain amount of complacency toward the budgeting process. Let’s face it: for most companies, budgeting is one of those obligatory chores that has to get done, and once finished, is put out of mind until the next year.
Unfortunately, this set-it-and-forget-it approach leads to old data, bad habits, and inefficient uses of resources, when instead, budgets should be the tool companies use to put their strategic plans to work.
So what should companies do to modernize their budgeting?
Stop Depending on Static Spreadsheets
We live in a connected, automated world, which makes it hard to believe that businesses still rely on manual, time-consuming tools like Excel spreadsheets to manage and track budgets. But that’s the reality for as many as 43 percent of companies operating today, according to our research.
Despite their ubiquity, spreadsheets are prone to errors, and they have serious challenges with version control and managing access for multiple users. Automatically updating them with new data is tricky. For all of these reasons, spreadsheets become static and out of date, making it almost impossible to get an up-to-the-minute view of a company’s financial status.
And when companies lack real-time visibility, they can’t track spend, adjust budgets, and communicate about changes as they happen, making it tough to manage resources, respond to new business imperatives, and make strategic spending decisions. Look for budgeting tools that bring together real-time data with collaboration features that make it easy for finance, budget managers, and employees to communicate about budget and spend.
Stop Thinking About An Annual Budget
Another mistake companies commit year after year is taking the term ‘annual budget’ a little too literally. More than 50 percent of companies surveyed map out corporate spend just once a year, despite best practices that say rolling budgets are the way to go. Only 14 percent of companies we surveyed use rolling budgets. Why? Because tracking, reconciling and forecasting is time-consuming, data-intensive, and dependent on input from employees throughout the organization.
Many finance teams report that regular month-end reconciliation takes ten or more days. A recent study from PwC reported that even the highest functioning finance organizations spend up to 40% of their time just gathering data.
While it’s critical that companies keep accurate financial records for reporting purposes, it’s even more important that they use all available data to make informed recommendations. Updated budgets built with live forecasting features give management teams the means to make better decisions about immediate changes and opportunities in the business environment.
Start Prioritizing Budgeting
It’s easy to slip into bad habits when it comes to managing budgets. Thirty percent of respondents said their companies don’t have a formal budgeting process in place. Forty percent said they rely on their finance teams to intervene and stop spending when the budget gets off track. And sixty-four percent of respondents said their companies go over budget at least some of the time. We asked: why does this happen?
The main reason cited was that their organizations are too busy with other “mission critical” projects to worry about spending time on improving budgeting solutions. But what can be more mission critical than matching your financial and personnel resources with your company’s strategic objectives?
When done right, budgets have the power to be the key productivity tool that empowers all employees, at every level of the organization, to make smart decisions about where to invest time and money.
Start Including Everyone In the Process
To make budgeting a higher priority, everyone in the company must be involved in the process. Our survey revealed that the companies who were most successful in managing budgets were those that combined good tools and processes with ongoing communications and updates.
This finding mirrors a shift in how finance teams are thinking about working with departmental or budget line managers, where ideally the two functions come together as business partners aligned around common objectives. Unfortunately, in many organizations, budgets tend to be siloed in finance, while day-to-day business operations happen in sales, marketing, services and development.
To truly solve the silo problem, budgeting tools and finance teams need to engage department managers and employees in the budgeting process by writing the budget not in terms of last year’s actuals plus ten percent but in terms of business initiatives and activities. Budgets need to be visual and use categories that are meaningful to managers and spenders, not a laundry list of General Ledger codes. And finally, companies need to let managers see what’s been spent and what’s been planned for in real-time.
At Center, we believe that budgets should reflect strategy, and that every employee, at every level, in every action, contributes to the success of that strategy. Used right, budgets help make smart decisions about how to invest resources in an ever-changing business environment. The survey we conducted highlights a fundamental problem—without timely insights, budgets are just static documents that cannot support organizations as they grow and evolve.
Budget managers and employees need better solutions that allow for real-time visibility, ongoing adjustments in priorities, and consistent communications to help them meet their financial goals and make more strategic decisions about where to prioritize and invest resources.
This article originally appeared on Benzinga on Nov. 28, 2017