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Vietnamese Many view budgeting as a daunting task. However, if implemented effectively, the process can serve as a robust instrument in converting expectations into a well-defined pathway for success.
Just as a successful soccer team needs a strategy to secure a championship, your business necessitates a plan, namely a budget, to attain its financial objectives.
Read more: Digital Transformation in Finance and The Changing Role of CFOs
Contents
- How budgeting works in reality
- Why does it take companies so long to produce their budgets?
- Vital signs that say you need a dedicated budgeting solution
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How budgeting works in reality
Budgeting is not a quick sprint; it is a marathon with several essential stages.
A typical budgeting process may look something like this:
- 2 to 4 months for data gathering, trend analysis, and goal setting
- 1 to 3 months for revision. The process would take much longer if more stakeholders were involved
Source: cfo.university
However, the cycle does not end there. There is still the approval phase, where management and board members review each submission. Although this stage is somewhat quicker, it can still take anywhere from a few days to several weeks.
Thus, the entire budgeting cycle for a financial year could span from 4 to 7 months or even longer in more complex situations.
Read more: How Raymond James Financial Slashed 50% of Its Reporting Time
Why does it take companies so long to produce their budgets?
Budgeting typically takes a long time due to a variety of reasons, both good and bad. However, there are mainly two factors:
- Limited visibility: Traditional budgeting typically relies on historical data, often concealed within various departments. Without a unified, up-to-date source of information, it can be tricky to predict future performance accurately.
- Technological limitations: Manual spreadsheets and data entry lead to errors, collaboration issues, and eventually, slowing down the entire process.
Traditional budgeting has long been the standard approach for businesses to handle their financial planning and performance. However, it has faced significant criticism as the method uses historical performance data to anticipate future trends. Essentially, you are making educated guesses.
This approach is full of errors and can be more detrimental than good in today's already highly unpredictable business landscape.
Even worse, businesses typically do not have just one piece of data or one departmental budget to assess. Sales, marketing, customer support, procurement, and more—each has its own unique needs, priorities, and goals, and all are waiting for their portion of the budget.
In a recent survey conducted by Infor on 150 businesses of all sizes and industries, the results showed that 61% of users waste time aggregating data using tools like Excel.
Also, consider this:
- 73% of finance teams manually collect data or run forecasts and scenario planning offline
- 76% of CFOs struggle to plan without one consolidated source of truth across business units
- 50% of CFOs make financial decisions based on gut feelings due to siloed or unavailable data
Source: HBR
Budgeting involves more than just inputting figures into spreadsheets; it requires a deep understanding of each department's specific needs and aligning these with the company's broader financial objectives. This intricate level of detail and collaboration often results in ongoing discussions to ensure every department's requirements are accommodated within the designated budget.
Read more: 10 Common Mistakes in Financial Forecasting & How to Avoid Them
Balancing competing priorities and making well-informed business decisions demand a more adaptable and powerful tool than traditional spreadsheets.
Vital signs that say you need a dedicated budgeting solution
Are you observing any of the following indicators that could suggest underlying issues?
#1. Budgeting takes months
As previously noted, the entire cycle can take at least 4 months or more, with the time required to gather data and establish goals ranging from 2 to 4 months.
If that timeline sounds short to you, that is a strong signal that your current budgeting method is not suitable.
#2. Your budget isn’t flexible
Picture this: just when you are about to finish the company's annual budget, a significant issue arises, demanding revisions. Does this sound familiar to you?
In such cases, how do you usually handle them? How long does it take you to make all the required adjustments? How many times do you have to adjust the budget? Do you encounter any other issues along the way?
Read more: 8 Steps in Selecting the Right Planning & Budgeting Software
#3. Too many departments are over budget
Budgeting could be enforced from the top down, resulting in unrealistic expectations, a lack of ownership, inaccurate data, etc. Moreover, businesses might lack control over their spending or fail to consider external factors.
The outcome? Departments that keep going over budget.
#4. Your business has gone through significant growth
As a business grows, so does the complexity of its budgeting process. This expansion can be accompanied by a variety of challenges that may not have been apparent in the past. It can highlight inefficiencies, lack of scalability, or insufficiencies in data handling that need immediate attention.
If your business lacks dedicated budgeting software, this growth can serve as an urgent signal to implement a robust system. Without such a system, managing the increased data volume while ensuring accurate, timely, and relevant budgeting can become increasingly difficult.
#5. Your profitability is experiencing a decline
Many companies experience a decline in profitability without fully understanding the reasons.
Firstly, companies may experience "cost leaks" due to overlooking small, seemingly insignificant expenses, which can accumulate over time. The primary cause is a lack of clear visibility over all departmental spending.
Secondly, business data does not reflect the current market, which leads to poor investment choices or misallocation of funds.
Without the right budgeting tool, companies may find themselves struggling to conduct in-depth cost analyses and identify areas for expense optimisation.
#6. You’re frequently doubling up on work
Annual budgeting typically involves each individual team gathering and predicting their own data. Without regular updates across teams regarding their budgets, there is a high chance of redundant work, repeatedly exporting the same reports, searching for duplicated information, or even preparing budgets for the same departments.
As you can guess, the outcomes are wasted time, an extended finalisation process, and frustration as teams attempt to reconcile conflicting information.
By centralising your budgeting processes on a single platform, every team can clearly see who is responsible for what.
For a finance team to effectively manage ongoing changes and make optimal planning decisions with agility in real-time, it requires more than outdated solutions and manual spreadsheets. It needs dependable, consolidated data from all parts of the organisation.
Enterprise performance management software can facilitate this objective.
But how? To learn more about enterprise performance management software, particularly the solution that TRG offers, Infor EPM, check out our on-demand webinar here or request a demo.
