Many small business leaders dread the budgeting process every year because it can so often be a nightmare for them. Closing in on predicted expenditures for new initiatives, reconciling financial data from any number of sources, comparing it to past plans and projections and double checking for errors can be quite the grind indeed.
This feeling is so widespread that a recent survey of 500 CFOs from DataRails shows that fully 92% of professionals are frustrated with what they go through to create budgets. According to the statistics, if you’re a CFO who’s happy with your annual budgeting process, then you’re in an exclusive minority.
On average, apparently, the operation lasts for a grueling five weeks, but it can vary greatly. Some 11% of respondents to the survey revealed it took over three months at their companies.
This is partly due to the fact that financial teams do so much manual work. There are consequences to this beyond simply annoying people in finance roles, as it means there is less time available for the higher value work analyzing the financial viability of different projects. Reducing the time it takes to complete the annual budgeting process is critical to unlock the full economic potential for finance teams to inform small business strategy.
To help finance teams and CFOs to free up time for more valuable tasks, here are five tips to speed up your annual budgeting process.
Coordinate calendars early
Inevitably, as your team expands, more people become involved in the budgeting process. This can make coordination tricky, especially if different stakeholders want to make sure their views and spending needs are included.
Sometimes the budget can take a long time simply because one or two people become a bottleneck. You might find, for instance, that the CEO is stuck in back-to-back meetings and the times they are free doesn’t suit other members of the team.
The best way around this is by planning early and putting meetings in the calendar well in advance. This is particularly important for the busiest team members, as they then can organize their other meetings around the budget meetings which are set. Preparing early can save a lot of pain and reduce time wasted.
Maintain a rolling forecast
A highly effective way to stop artificially creating crunch periods once a year is to maintain a rolling forecast all year round. This means there’s significantly less work in the overall budgeting process, and stakeholders are kept up to date all the time rather than only in an arbitrary period.
What’s more, when a finance team has a “just-in-case” culture, ready to handle unexpected contingencies by building buffers into plans, there’s much less opportunity for shocks to take the business by surprise.
Ad hoc contingency planning then becomes something that happens all the time, to evaluate opportunities that come up over the course of operating the business, or to make sense of sudden shifts in market dynamics, and these models can then inform budgets.
It’s surprisingly easy to shift to a more agile financial management approach, because of the technology available today. If your company automates the process of pulling data from original sources into the forecast, then there’s no manual work for the finance team and everyone has the latest information.
It’s easy for people who aren’t from the finance department underareciate how much pressure there is on the CFO during the annual budgeting process. They are busy with their own work, and it can feel like a distraction if it’s not communicated to them how it impacts them. They might then place a lower priority on getting their data and insights across to the finance team.
For this mindset to change across your growing team, the message needs to come from the entire top management in a unified manner. Keep your team updated by setting up a business email and sending regular newsletters to your employees.
If everyone realizes that a speedy annual budget means that the finance team has greater confidence to approve other projects, then other teams have more substantial buy-in.
Use external benchmarking
For a small business that’s scaling up rapidly, it can be difficult to know how accurate the annual budget is. When there are so many variables, stakeholders can feel uncertain about the numbers used which can slow the process down. When the assumptions of every minor decision are questioned, it’s easy to see how the process can take months.
To increase the confidence levels, you can use external benchmarking to see if the numbers seem realistic when compared to competitors and other businesses of a similar size.
While this may have been difficult in the past, today there are many services that allow you to search for this information. This comparison should be done by the finance department before the figures are shown to other teams, though, so they can be adjusted if need be.
Your entire budget, or aspects of it, might be an outlier compared to industry averages, and this is okay as long as you can justify why your business’s circumstances are an anomaly.
Don’t be afraid to invest in technology
Some businesses have a drawn-out budgeting process because they are relying on outdated technology. Yet the hesitancy to update is understandable. It would mean retraining staff and time lost in the short run while everyone gets used to the new technology.
According to DataRails’s survey, 81% of businesses use Excel for their annual budgeting. While spreadsheets out of the box aren’t optimized to streamline the process, there are many companies who produce add ons that strip out manual work, prevent data theft and speed up common processes.
This is a sensible investment, as you get the best of both worlds – all the benefits of using the latest technology while not overwhelming your staff with software they are unfamiliar with.
Small business leaders need to spend much longer on their annual budgets than they might like, but they don’t need to accept this. You can significantly reduce the time it takes for your finance teams and free up time for higher value and more engaging tasks.
Here are the five tips you should follow:
- Coordinate calendars early – Ensure all the key stakeholders have time set aside for the annual budget months in advance.
- Maintain a rolling forecast – Don’t wait for budget season before updating your forecast. Automate the process so you can always use the latest information.
- Emphasize objectives – To secure buy-in from other stakeholders, clearly communicate why the budget is important for them.
- Use external benchmarking – Reference competitor’s figures and industry averages to add extra confidence to your estimates.
- Don’t be afraid to invest in technology – You can easily enhance Excel to remove many of the manual processes from your budgeting process.