The budgeting process is never easy and if you’ve ever been a part of one, you’ll likely have some not-so-nice memories about the process. The self-implementation of resource constraints is a difficult process because you have to prioritize between different spending ideas and arrive at a solution that is going to be best for the overall organization. This requires tradeoffs and you’re never going to make every department happy.
With all this being said, it’s one of the most important pieces of any business to get right as it lays out the guidelines for the year to come and enables management to look after invested capital in an efficient and decentralized way. In this post, we’re going to explore 5 common budgeting challenges and offer some advice as to how companies can overcome them.
1. Inaccurate data collection
In almost every circumstance, the budget is built on a foundation of past data. This data needs to be collected carefully and intentionally so that a clear picture of reality can be formed. It’s only from this clarity that your forward-looking budget can be accurate and in touch with what’s happening on the ground. However, this data collection can be very challenging.
The way around this is to move towards a unified financial planning system that pulls all data into one place so that you don’t have to deal with multiple different tools, data flows, and collection techniques. Investing in a single FP&A solution eases this process and means that all your data is in one place, ready for budget season.
2. Version control
Budgets go through numerous rounds of iterations and if you’re using a tool like Microsoft Excel, you’re likely passing versions around to different teams whose data is in various stages of completion. Even with one person dedicated to consolidating these, there is a lot of room for human error and out-of-date information that can be very frustrating.
Utilising a dynamic database tool that everyone can contribute to gets around this because everyone can see the latest version at any point in time. There’s one single source of truth that evolves over time and the added transparency means that everyone knows where they stand.
3. Using the wrong drivers
Sophisticated budgets will utilize drivers to evaluate the scale of each expense, revenue and balance sheet line. These build on assumptions made during the planning process and aim to approximate the resources needed to accomplish what was agreed upon. But where this can go wrong is when the driver is not selected carefully enough and therefore leads to inaccurate results.
Great care needs to be taken to identify the specific drivers that move the needle, eschewing correlation and looking only for truly causal links. This requires a combination of data analysis, intuition, testing, and iterative planning – all of which can lead to much more accurate budgets when done correctly.
4. It takes too long
Depending on the level of complexity in your organization, the budgeting process can take a very long time. This can cause strain on your teams who are also trying to keep on top of their operational tasks while being distracted by budgeting. You don’t want to sacrifice accuracy for speed of course, but you do need to scope the effort for budgeting appropriately so that you get the results you need without overburdening the rest of your workflows.
Here the right technology goes a long way. Having a powerful and intuitive FP&A solution that enables efficient budgeting can save you a lot of time and many headaches. You want your technology stack to accelerate progress and deliver results as effectively as possible. Then you can get back to the core operations as quickly as you can.
5. Standardized templates don’t account for your company’s complexity
While there are many tried-and-tested best practices for budgeting, the truth is that your company needs to come up with its own ways of doing things. Standardized templates often will miss key components of what makes your business unique and this means that complexity is missed along the way.
Your budgeting process should be configured and built specifically for your needs, taking into account your organization’s unique requirements. This attention to detail makes the world of difference in arriving at an accurate budget that works for you.
Apliqo’s suite of software solutions is well-positioned to help you navigate these challenges and take your budgeting to the next level. If you’d like to explore how we can help you with this, be sure to get in touch today!