For most organizations, fall is the time to prepare the annual budget in time for the start of the fiscal year. But recent years have seen such seismic changes in the financial industry that it’s not always easy for controllers and other financial professionals to know how to navigate the budgeting process.
While there are no magic bullets when it comes to the budgeting process, there are some key strategies that you can use to optimize your approach. Here are 5 budgeting tips that you can use when planning for 2022.
Set Short-Term Goals
The 2020 pandemic only magnified the volatility facing many modern industries. This means that yearly budgets might not be as reliable as they once were.
Instead, financial personnel can work toward smaller, short-term budgetary goals. Many companies already rely on quarterly budgets, but some industries might need to think even smaller, pursuing monthly, weekly, or even daily budgets.
This approach to budgeting allows you to set clear benchmarks that drive performance across the entire company. It can provide a more accurate picture of your company’s financial health.
Short-term goals can help senior management hone their business strategies and can also be useful for adjusting resource allocation on a more fluid basis, which might be a better strategy for meeting fluctuating demands.
A short-term approach gives your company greater flexibility and can better match your financial needs to your overall revenue stream. This can also highlight critical areas with strategic seasonal importance or suggest ways to optimize employee performance.
Think in Terms of the Big Picture
Setting short-term budgeting goals doesn’t mean that you or your team should neglect the big picture. In fact, setting short-term goals and benchmarks may actually force you to consider how these immediate objectives will serve your company’s larger mission. That’s why you shouldn’t dispose of the annual budget altogether.
Granted, your annual budget may be a bit more flexible when relying on smaller goals, but that is partly the point. Your annual budget can now be used in conjunction with financial forecasting to provide a roadmap for your company’s future.
This kind of budgeting—and the data that comes with it—remains important for communicating to stockholders and potential business partners, as well as having an understanding of your company’s overall health, which is vital for your long-term strategy.
Create Open Lines of Communication
Clear communication and financial reporting are important for any company, especially during seasons of increased financial volatility. Regardless of your other budgeting strategies, it’s important for financial professionals to regularly communicate financial data to organizational leaders.
How you accomplish this may depend on your industry and the leadership structure of your company. But if you shift to smaller, short-term benchmarks, you’ll want to ensure that there’s a regular flow of data related to your business finances so that your leadership team has a complete portrait of the company’s overall financial health.
Automate Core Processes
Modern companies are discovering that they can become more agile and efficient by automating many of their core processes. This can reduce overhead costs by minimizing the demand for personnel. At the same time, it can free up more margin for employees to invest in revenue-generating tasks that are associated with your core business.
Many of these cloud-based systems can be used from anywhere in the world, which means that your team can experience greater flexibility and therefore be able to generate more revenue when you use digital solutions.
Budgeting decisions should therefore be made in light of the automation options available within your industry. In many cases, administrative processes such as invoicing and payroll can be shifted to digital platforms, ensuring a faster, reliable revenue stream while minimizing overhead.
Outsource Where Possible
Similarly, companies can optimize their 2022 budgets by partnering with outside firms for their core processes. This has similar benefits to automated technology in that it frees up employee time and minimizes overhead costs.
But outsourcing also has an added benefit: The workers at these third-party firms often have education and experience that can serve your organization. They may be able to provide strategies to help you stay profitable, regardless of the state of the economy.
Even financial teams can benefit from outsourcing at least some of their accounting processes to third-party platforms. While this doesn’t eliminate the need for in-house financial employees, outsourcing some of your processes can lead to better, faster reporting, which can improve the way your company functions from top to bottom.
Thinking Beyond Budgeting
It’s important to remember that there’s a difference between a volatile business climate and an unstable one. Financial controllers can help companies to find their balance even during periods of fluctuation and change, providing confidence and guidance that can help a company flourish.
Preparing a budget is more than just making a spreadsheet; it’s about crafting a strategy for the future.
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