Is your budget for 2020 not quite there yet, despite the new year having already started? Don’t despair! Here are a few tips on how to finalise a good budget in no time.
For most people who work in accounting and finance, sound management and oversight of the company’s results, liquidity and assets are core principles of their work. Good financial management throughout the organisation also extends to how the CFO and his/her team prioritise their time. Unnecessary time spent on budgets and forecasts are counterproductive. But how exactly do you get better budgets done in record time?
We have collected today’s tips from our own “vault”, from international experts and – not least – from the Nordic consultancy View Ledger, which has offices in both Sweden and Norway and provides the public with sensible and practical tips on budgeting and forecasting.
1. Now is the time to start budgeting
“Whether you are running a small or large business, you have to allocate time to plan and complete next year’s budget. This should include more than just a statement of income and expenditures. It should also be used as a tool to understand the opportunities that lie ahead for the company in the near future,” writes View Ledger in the article Dette er de vanligste feilene du gjør når du budsjetterer (“These are the most common mistakes you make when budgeting”). Yes, this article assumes that the budget is already in place. For companies that have yet to begin, we suggest starting now and proceeding quickly but cautiously to ensure a quality process and final budget.
2. Make sure the new budget is more than just a copy of last year’s
A budget must have a meaningful purpose if it is to have any value for the company. The company’s overriding strategy and key goals are a good place to start – and should play a significant role in defining the budget’s framework. The key goals are normally broken down into plans, such as new product or market ventures, recruitment decisions, or investments in new assets. Whatever the goals, most companies aim for growth, improved profitability and strengthened liquidity. So is your budget a roadmap to achieving these objectives?
3. Simplifying the process is easier than you think – use tools!
While your new budget should not be a replica of its predecessor, many items will indeed be almost the same from one year to the next. Despite many of next year’s expenditures being 100 per cent predictable, people spend way too much time digging up precise documentation for the amounts linked to the commitments they know will arise. When you cut the time spent on what should be routine budgeting tasks, you free up time for the more strategic initiatives.
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4. Focus primarily on the biggest items
The 80/20 rule often also applies to outlays and expenses. Identify the biggest expenditures for the coming year and when they need to be paid. And do the same for income. If you use a tool to record and make these figures accessible for ongoing contracts, you can simultaneously save a lot of time and make your budget more precise.
5. Involve key employees in the process
As mentioned in the second point above, it is a good idea to use the company’s strategy as your starting point for the budget process. This means that you will need to involve those decision makers who are likely to trigger initiatives that will significantly impact the company’s liquidity.
6. Be realistic and restrained, especially about income
“Most people believe in their own products and services. That’s why it’s important that you are realistic and not overly optimistic when assessing income. You should evaluate what is possible on the income side, bearing in mind the company’s capacity and the market’s potential,” writes View Ledger. If next year’s secured income is already recorded in a system such as Complete Control, you can easily verify whether customers have signed up for another year.
Are you ready to discuss how you can cut the routine tasks in the budget process while making forecasts more accurate?