Financial Budgets

On how your financial budgets can be optimized - It’s either the best or worst thing you’ll do all year depending on the “system” you use. Successful companies know they must go through the planning, financial budget and forecasting process with small business financial software in anticipation of the coming year and to align the budget with the strategic plan.

There are three critical components of a strategic plan:

• Plan – top down strategic plan that defines your companies high level goals and objectives.
• Budget – strategizing to determine resourcing and set specific targets to match your plan.
• Forecast – determine/track your expected performance against specific targets.

Unfortunately, most people dread the process because it requires a lot of manual effort, shuffling through old spreadsheets and flipping from screen to screen while trying to create a picture of the coming year.

It can be a complex process. An organization’s overall budget has multiple smaller budgets rolled up into it: sales and revenue budgets, departmental and operational budgets, and a general expense budget to name a few. You begin with revenue projections which may be by project or customer (who buys what and when). You perform a lot of analyses and create forecasts based on what you think you’re going to sell by product, product line, customer, etc.

The departments responsible for providing the services take the revenue projections and forecast their elements. What kind of headcount is needed to achieve these projections? What resources, supplies or vendors are needed? What do facilities expenses look like to achieve the revenue?

Sales jumps into the fray with their sales projections. Operations aligns their resources and expenses accordingly. Every department, whether it’s purchasing, R&D, sales or accounting, puts together their own budget based upon what they understand are management’s strategic goals and the revenue targets. The result is more ownership and a team who buys into the overall budget because they are part of the process.

Ultimately, all department budgets are consolidated into one master baseline budget which goes through the approval process, and in a perfect world, is signed off on for the coming fiscal year.

Once you’re in the new year, you want a system where you can export and update the budget in your ERP solution. You need very robust financial budgets reporting tools which will allow you to do month-by-month comparatives or quarter-by-quarter of actual versus baseline budget. Ideally, you can compare year-to-date actuals versus your baseline budget so you can quickly identify when things aren’t happening to budget, good or bad, and address the issue.

Your baseline budget doesn’t change throughout the year, but as the year moves along, you’ll see trends. You can compare your actuals to both the baseline and your current forecast.

It’s All About That Data

When you’re budgeting, it all comes down to having good data so you can look at your history and make projections. Having a robust ERP accounting system provides the data you need to do to create your budget. You’ll have the ability to easily import, update and make changes to your budget, as well. Easily compare your actuals to your baseline to your current forecast.

An Integrated Solution

No one likes the budget process, but an integrated ERP system makes it simpler, providing the ability to roll disparate budgets into one and then make comparisons and changes as needed.

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