In 2020, the ravaging Coronavirus pandemic forced many businesses to throw their original plans and budgets out the window. Most companies redirected their funds to cover just the essentials in the wake of reduced revenue and increased uncertainty. There were also numerous layoffs and furloughs to help extend the runway for companies. Even gainers from the pandemic had to reevaluate projects with lengthy ROIs and align their spend to more pressing demand hikes.
Now, as countries gradually lift stay-at-home orders and day-to-day operations resume, businesses are going back to the drawing board to ensure their budgets are well adapted to the new normal. Many people are optimistic about 2021, but with a new U.S. administration and a pandemic not yet under control, it will not be a year of extravagance.
As a leader in your organization, you must develop the optimum budget for your business, and more importantly, take measures to abide by it. Read on for seven reliable steps to ensure your company sticks to your 2021 plans.
Proper budget management and implementation hinges on a realistic budget that you are likely to adhere to in the first place. Regardless of the level of organization and detail in your financial plan, you cannot possibly accomplish anything if your numbers are impractical. So, when creating a budget, start by developing an understanding for what you can and cannot change. For example, are you able to change headcount? How about the amount you’re buying from a certain vendor?
Then, based on those inputs, use past data or your best intuition to understand what the outputs will be as it relates to expenses and revenue. For example, if you’re not able to lower your marketing budget due to some contracts, understand how much revenue that marketing budget will help you drive. If you need to hit a certain growth or revenue goal, understand how much marketing, advertising, and other effort it will take to hit that goal. Then convert those efforts into costs, and you’ll have your budget number to track.
Having a good grasp on what can be adjusted as well as the relationship between revenue and expenses will help you stay on budget.
Monitoring your financial outflows goes beyond cash management. For effective budgeting, you also need to know how much you owe your business partners, be they employees, suppliers, banks, or regulatory bodies, and the length of time you owe these commitments. Capturing service dates, invoices, and spend requests as they come in helps you keep a sharp eye on your company’s current and future spend and take proactive rather than reactive measures to stay on budget.
Lengthy contractual agreements can be easy to miss without proper management. Fortunately, you can take advantage of a software solution like Sudozi to track upcoming payments and renewals. Sudozi provides an intuitive dashboard for visualizing financial commitments as well as alerting reminders, so you never get caught by surprise.
Furthermore, with Sudozi’s simple spend request workflow, your employees can log their spend requests for quick review and approval. This workflow gives you a searchable repository for all requests, which you can use during budget reviews.
Another proponent of budget realism is breaking your annual company plan into smaller amounts spent over shorter periods, such as months or quarters, as well as individual vendors. If you look at spend yearly, it can seem like an unreal number to manage. By changing the view from annual to monthly or quarterly, and taking it a step further by breaking it down by vendor, you can bring your budget closer to reality and make it more manageable. You can also become more aware of your spending and identify early on if you are going over budget.
A financial plan is only as good as the information that feeds it. Your expense report is one of the critical pieces of your budget, and for it to give valuable input, you need to update it continuously.
In our previous post with 8 Tips on Cutting Wasted Spend, we suggest dedicating a finance or accounting analyst to put together weekly cash reports that consolidate spend from various payment methods. This report can be shared within the finance team and overall company leadership to flag any unnecessary spend. This will help you catch things before month end reporting.
If you have an FP&A or Strategic Finance team, you can create business review processes for key departments to track expenses. At the end of each month, you can retrieve the expense report and compare what you spent against your budget for vendors and headcount in those departments. That way, you can capture overspending early and implement ways to bring your company back within budget.
A budget is not something you can just create on your laptop and then email out expecting everyone to review and understand, especially in this environment. Sure, you can sit and track revenue, account for expenses, and allocate the money where you want it to go, but you cannot possibly consider all your company needs by yourself.
Successful budgeting is a collaborative effort that involves representatives from all departments, who come into budget creation and review meetings to present the requirements and expectations of their teams. Full company participation, particularly at the executive level, ensures company spend is well allocated, and departments are actively held accountable for any spending discrepancies.
Business leaders often make the mistake of setting a budget and tucking it away until the end of a quarter or fiscal year. Given today’s uncertainties, you must bring your budget for discussion in reasonable frequencies to stay on track. Experts suggest revisiting it every month and updating key elements according to the previous month’s business performance and expenses.
When reviewing your budget, involve all the relevant people. Analyze your forecast and document things that imply a change to your budget. Make sure to keep those notes in a platform like Sudozi that helps you remember those changes in the future. The more thorough you are, the more likely it is to uncover opportunities and eliminate mistakes.
Lastly, although a budget should account for as much as possible, it is essential to leave room for flexibility. New needs will arise as the year progresses, and a rigid budget will not give space to address them. So, when budgeting, do not assign every penny to specific needs. Leave a small percentage unallocated so you can confront opportunities and threats as they arise.
Budgeting is usually a tricky endeavor, but when you throw in shake-ups like the pandemic and global recession, it becomes a lot more complicated. So, if you have done all the legwork needed to put a solid budget in place, you owe it to yourself and your business to stick to it, or adjust as needed. As a company leader, pay careful attention to your budget. When you notice things swaying out of place - as they inevitably will - take the forefront to right the ship.
Think of your budget as any other goal you have made going into the new year. Just because you have a plan does not mean you will achieve your objective. To realize your end goal, you must stay on track and execute the plan fully.