4 Biggest Challenges of the Budgeting Process – and How to Solve Them
Budgeting is an important business tool because it helps you control your spending, track your expenses and ultimately – save more money. In short, budgeting helps ensure that you will always have enough funds to operate your business. Therefore, it is an important part of running any business efficiently and effectively.
However, creating a budget comes with its own built-in challenges. Here at Clear Insight, we have come up with actionable solutions to each of these challenges.
Problem #1:
Creating a budget is time consuming and expensive.
Solution:
Delegate specific tasks, set goals and use a budgeting software that is cost-effective.
It can be very time-consuming to create a budget, especially when the budget requires constant iterations. Many CFO’s have reported spending upward of 250 hours on the budgeting process alone. This can take time away from core business activities and be a poor use of time and resources. When multiple users are working on different versions of the same static spreadsheet, this is very time consuming to coordinate, compile and consolidate.
The cost of all of the time and resources spent on budgeting quickly adds up. Whether it be the labour cost or the cost of budgeting software, it is important to keep track of how expensive the budgeting process is for your business.
To reduce the time and cost associated with building a budget, businesses should focus on delegating tasks to employees, setting weekly and monthly goals, and choosing a budgeting software that is cost-effective. By delegating core tasks of the budgeting process, each employee will know exactly which duties they should be completing and can be held accountable, if they are not completed on time. This also ensures that no two employees will be working on the same task, thereby reducing costs. Management should also set daily, weekly and monthly goals outlining when they would like certain tasks completed by. Lastly, some accounting softwares are more time and cost effective than others in relation to the budgeting process. To reduce the time associated with budgeting, choose an accounting software that is automated, flexible and cost-effective.
Problem #2:
Budgeting involves a high degree of complexity.
Solution:
Create a flexible plan that allows you to adapt to changes and use software that reflects real time progress.
Budgeting is a very complicated and multi-step process, especially when dealing with unpredicted external changes in the environment. The slightest modifications to a budget can result in a complicated process of recalculating numbers, responding to questions and resending spreadsheets. Additionally, the majority of financial budgeting and forecasting processes do not have the capability to accommodate reorganizations, mergers and acquisitions or divestitures. Without the ability to recognize these changes, a budget cannot be effectively responsive and up to date. Aside from simply creating the budget, it is beneficial for companies to perform comparative analysis or test the impacts of potential decisions to different aspects of the business.
Given this high degree of complexity, businesses should create a flexible plan that allows them to adapt to any unforeseen changes in the budgeting process. Flexibility means understanding the risks you are undertaking and preparing a backup plan, and using a software that enables easy, automated changes. Flexible budgets are open to change. As you receive new information about your business’s sales, production or other factors, you are able to directly adjust your budget to reflect these changes.
Problem #3:
A lack of communication between employees leads to errors in the budget.
Solution:
Schedule consistent meetings between employees, choose a software that is multi-user friendly.
There are many moving parts within a company during the budgeting process. Each step of the budget requires input from different departments and users, and as a result, sometimes it becomes difficult for all of these users to coordinate their activities with one another. This lack of communication can have many negative implications on the end result of the budget. When two users do not communicate with one another, their tasks are not coordinated and as a result, there is a lack of alignment in the final budget.
Communication becomes especially important in today’s time given the increase in online work caused by COVID-19. Therefore, given the importance of communication in the budgeting process, management should focus on scheduling consistent meetings, creating and establishing reliable lines of communication between employees and using an accounting software that reflects real time progress and is multi-user friendly.
To promote open communication, management should create a comprehensive schedule for when employees should meet with one another to discuss their progress. How often these meetings take place depends on the size of your company, the nature of this communication and how quickly you would like to complete this budget. One thing that is important to note is that these meetings should strictly focus on the budgeting process – it should not be a time for employees to discuss other tasks and projects. Aside from scheduling meetings, management also needs to establish what platform communication will take place between employees. Whether choosing to use something simple like Facebook messaging groups or a more multifaceted platform like Slack, it is crucial that employees use a consistent platform over time – one that works for their business. Lastly, it is important for businesses to use an accounting software that reflects real time progress and can accommodate multiple users at once when creating their budget.
Problem #4:
Budgeting can lead to excessive focus on financial outcomes.
Solution:
Establish goals that relate to your company’s culture and integrate this into your budget, develop an understanding of where your company would specifically like to improve and translate this into your budget.
When creating budgets and spending time perfecting numbers, management tends to heavily focus on financial outcomes. Majority of companies aim to use their budget to increase revenue, reduce expenses and overall increase profitability. With so much focus on the bottom line, management tends to overlook many qualitative aspects that make the workplace better overall like employee satisfaction and organizational culture. While these metrics are qualitative, they each have their own combination of quantitative counterparts that can be integrated in the budgeting process. For example, if a company would like to improve employee job satisfaction by offering higher wages for it’s part-time employees, this would need to be reflected through the wages expense portion of the budget. In order to avoid focusing too heavily on financial outcomes, start by developing an understanding of your company’s culture. Pinpoint what you would like to improve and how you will specifically make these changes. Then, translate these changes into quantitative metrics in your budget.
Budgets are an excellent way to manage your money more effectively, monitor financial performance, plan for the future, meet your objectives and improve your decision making.
The downside is that the budgeting process is time-consuming, labour-intensive, complex and potentially expensive. With that being said, we at Clear Insight, have provided you with actionable solutions that you can use throughout the budgeting process to reduce costs, meet your deadlines, improve your efficiency and ensure that your budget is up-to-date and reflects all of your future goals.
If you need help throughout the budgeting process of YOUR business, head to our Contact page and get in touch with us to determine if Clear Insight is right for you.