Budgeting season is one of the most important times of the year for any organization. Colleagues come together to review the previous year’s financial performance, set goals for the upcoming year and allocate resources to achieve those goals.
It can also be one of the most stressful periods for finance teams, so preparation is key. Budgeting season typically occurs toward the end of the current fiscal year. The process requires a lot of planning, analysis and outreach to stakeholders — which means you need a strategy.
In this guide, we’ll explore how your finance team can keep the planning and budgeting process on track and ensure the budget aligns with your business’s objectives and goals.
A Great Budgeting Season Starts With Planning
Budgeting is the process of planning how you’ll spend your business’s money over a given period, whether a month, quarter or year. The process begins with collecting estimates of your revenue and expenses for that period and gathering results of goal-setting sessions. From there, you can determine whether you have the resources to fund what the business hopes to accomplish.
Budgets are re-evaluated and re-adjusted on a periodic basis — in most cases, quarterly — though frequency may change based on external factors. For example, worries of a recession in 2023 drove budget cuts among 99% of 300 CFOs responding to an Oracle NetSuite survey of 500 business leaders across organizations with between $10 million to $250 million in annual revenue.
Successful finance teams go into the budgeting process with a positive outlook and a detailed plan. With the right technology and some tips, you’ll produce a realistic, comprehensive budget that is tightly aligned with your organization’s strategic objectives, yet flexible enough to roll with changes.
There are five keys to building an effective budgeting plan.
1. Develop well-defined and realistic objectives
For the finance team, this means understanding the organization’s strategic goals and priorities, then helping colleagues recognize how they relate to the budget.
Many companies use a framework, such as objectives and key results, or OKRs, to define measurable goals and then track progress in a structured manner. Leaders define objectives as statements that describe what should be achieved or improved. Teams then compose focused, quarterly targets, department by department, that together advance objectives and set KPIs to quantify progress.
These objectives then help finance teams align the budget with the goals of each department. This alignment ensures that the budget reflects the organization’s strategic objectives, and properly funding initiatives helps to drive performance in the right direction. Also, clear objectives establish accountability for the budgeting process and the results that come out of it.
2. Take a wide and deep collaborative approach
A productive budgeting season requires collaboration among teams. This includes finance reps working closely with operations, sales, marketing and other departments to ensure that the budget reflects their priorities. This is where a structure that embeds or aligns finance members with key areas of the business will really pay off.
On the flip side, budgeting requires clear communication of budgetary decisions and priorities back down the chain to all stakeholders. This means communicating the rationale behind decisions, with the backing of reports and analysis to show that funding choices are based on data.
3. Assemble robust data and analytics
To the above point, data in context and presented clearly provides the foundation for informed decision-making and ensures that the budget is grounded in reality. Include using historical data, market trends and other relevant information to develop realistic assumptions and forecasts.
4. Take time for scenario planning
Scenario planning is critical to account for potential risks and uncertainties that may impact the budget. This helps decision-makers identify ranges of potential outcomes and impacts, evaluate responses, and manage for both positive and negative possibilities.
There are several templates and formalized frameworks for scenario planning. It will take some time and commitment, especially the first go around, but formal scenario planning improves the resilience of the budget and the organization as a whole and helps it adapt to changing circumstances and unexpected events.
Scenario planning also provides a level of confidence in the budget because it has been stress-tested against a range of possible outcomes. This helps build trust among stakeholders and increases the chances that the budget reflects reality.
5. Schedule regular budget reviews and have a process for adjustments
Regular assessments help finance teams continuously improve the accuracy of the budget by verifying that it is based on the latest data, assumptions and business environment, and that previously set goals remain achievable.
In addition, regular reviews and adjustments let finance optimize resources by reallocating based on changes in business priorities or performance. This means monitoring actual performance against the budget.
7 Budgeting Challenges
Finance teams go into budgeting season with the best of intentions, but the process can become bogged down by internal and external challenges.
1. Lack of collaboration
Budgeting involves multiple stakeholders, including department heads, finance teams and executives. Without frequent and timely communication, it’s difficult to get complete and honest information about the organization’s financial needs and goals.
Different departments have different priorities, and they won’t always align. Finance and executives need to build consensus based on conveying a complete understanding of the organization’s overall financial picture.
2. Economic volatility
The current economic environment makes it more difficult than usual to predict revenue and expenses accurately. Companies always need to consider various external economic scenarios as they plan for different potential outcomes. This is why scenario planning is so important.
3. Return to office
Many companies have shifted to remote or hybrid work models, which can affect expenses related to office space, technology infrastructure, and employee tax and benefit calculations. You may need to adjust the budget to reflect these changes and ensure that you’re providing the necessary resources for employees to work effectively.
If your organization currently has more remote or hybrid workers than it did before the pandemic, it may be paying less in rent or other related expenses. As more employees return to the office, these costs may increase, which could also affect budgeting.
A return to office may also lead to increased travel and entertainment expenses as employees begin to attend conferences, sales meetings and other events in person. These all need to be factored into the budgeting process.
4. Changes in consumer behavior
As consumers become more or less concerned about their financial stability, spending patterns follow suit. Companies need to have plans in place to adjust their budgets to reflect any anticipated reductions in sales, while also exploring ways to maintain or increase revenue streams with more potential. They should also have new products or services in the pipeline to increase sales when spending loosens up.
5. Lingering effects of supply chain disruptions
Supply chain issues, such as shortages of raw materials and increased shipping costs, affected many industries during and immediately after the pandemic. As a result, companies sought out alternative suppliers or materials or adjusted their pricing to offset increased costs.
As supply chains normalize, will you reflect lower costs in your pricing, or will you hedge against other factors? This decision can impact profit margins and your inventory management strategy. Businesses may need to adjust their stock levels to account for delays or shortages in certain items. This can require adjustments to budgeting plans to account for any changes in inventory costs, like potential increases in write-offs or losses for unsold inventory.
6. Disconnected processes and systems
Many companies have disconnected budgeting systems, with no easy access to related reporting, analytics or dashboards. That can lead to inefficiencies in the budgeting process, as data may need to be manually extracted, standardized and loaded into different systems. This is a time-consuming and error-prone process, and it can delay budgeting and reduce accuracy.
Disconnected systems may also impact data integrity, as data may be stored in different formats specific to various systems. This can make it difficult to reconcile data, which again can lead to errors and inconsistencies.
7. Inconsistent use of KPIs across the organization
Metrics and KPIs play an important role in the budgeting process as they help align financial goals with organizational objectives. We mentioned OKRs earlier, but no matter how you formalize goals related to revenue growth, cost reduction, profitability, market share, customer satisfaction or any other relevant aspect of the business, you need to be consistent and think through which to include. If the KPIs in the initial budget template need to be changed during the process, you must start over again and send out new templates with updated indicators.
If there are difficulties in collecting data to inform KPIs, it may be challenging to get a clear understanding of the organization’s performance. This can make it difficult to identify areas of improvement and set realistic budget goals.
How Technology Can Improve Budgeting Process
Efficiency is always top of mind for CFOs. How can your team not only survive the budgeting season, but engage business colleagues to make it a productive and informative exercise?
Though there isn’t a one-size-fits-all solution, choosing the right technology will go a long way. Below are six suggestions to consider.
1. Prioritize real-time data integration
Finance teams need to be able to integrate the system that handles the budgeting process with other financial and operational software, such as an ERP, so data updates in real time. This ensures the budget is based on the most current information.
Real-time data integration also supports collaboration among various stakeholders, as everyone has access to the same up-to-date information. This keeps everyone on the same page in terms of progress toward defined goals.
2. Use driver-based budgeting
Driver-based budgeting focuses on key drivers of business performance, such as sales volume, price and cost of goods sold. Once your key drivers are identified, a budgeting tool helps quantify and measure the impact of each on the company’s financials.
For example, if sales volume is a key driver, look for the ability to analyze historical sales data and project future sales based on market trends and other relevant factors. By automating the process of identifying and forecasting factors that really move the needle, you can create a more detailed and accurate budget.
3. Incorporate artificial intelligence
AI can be used to analyze large amounts of current and historical financial data to identify patterns, trends and anomalies that can help predict future financial outcomes. This in turn assists organizations in creating more accurate budgets and forecasts, which helps them make better decisions.
4. Embrace workflow automation tools
These tools can automate the budget approval process, ensuring that all stakeholders are involved and informed. Workflow automation systems send alerts and notifications to team members when, for example, they’re approaching the limits of their budgets or when there are significant deviations from expected results. This can help prevent overspending and help the company take quick action to identify and address problems.
Workflow automation tools can automatically create budget templates, making it easier for users to input data and create budget reports. This can help speed up the budgeting process, ensure consistency and reduce errors.
5. Leverage rolling forecasts, or at least explore the concept
A growing trend in the world of finance, rolling forecasts enable finance teams to revisit budgets regularly and reforecast where necessary based on new information. Rolling forecasts allow organizations to reflect actual performance and changing business conditions, allowing you to make more informed and accurate decisions, and reducing the risk of over- or under-budgeting.
If you wish your line-of-business colleagues would pay more attention to budgets, a rolling forecast is a great way to make that happen, because it keeps the budget accurate, continually informative and relevant.
6. Monitor current reality with real-time reporting and analysis
Advanced reporting and analysis capabilities are key contributors to budget success. Think predictive analytics and dashboards that always reflect the latest data. Besides moving you toward rolling forecasts, these systems can help finance teams monitor performance against the budget and quickly identify areas for improvement.
Look for a solution that makes it easy to get and share insights in an easily digestible format.
Planning and Budgeting With NetSuite
Automation can make budgeting go smoothly, reduce errors and increase efficiency for all stakeholders.
By following the advice outlined in this article, you can ensure that your organization is well-prepared for budgeting season and poised for success in the upcoming year. Technology can play a crucial role by providing the tools and resources necessary to make informed decisions.
NetSuite Planning and Budgeting facilitates both companywide and departmental planning with modeling capabilities, predictive analytics, approval workflows and reporting within one collaborative, scalable solution.
Here are some key benefits.
- Native seamless integration between NetSuite Planning and Budgeting and the NetSuite ERP provides one collaborative, controlled and scalable solution for your organization. Integration is fast, reliable and flexible, ensuring your data is up to date. This frees up resources and lets finance develop a planning process that is more collaborative and agile.
- NetSuite Planning and Budgeting allows you to create flexible models that incorporate various drivers or factors influencing your budget, including sales volumes, pricing, headcount, production units or other variables specific to your organization.
- Predictive analytics features help forecast future performance more accurately. By leveraging historical data, statistical algorithms and forecasting techniques, the system can generate predictive models to forecast financial outcomes, sales projections, demand trends or other key performance indicators. This enables organizations to make data-driven predictions and anticipate future financial results.
- NetSuite Planning and Budgeting supports configurable approval workflows to eliminate one of the biggest roadblocks in the budgeting and planning process. Users can define custom approval hierarchies, establish rules for review and authorization and set up automated notifications for approvers. This ensures that budget proposals or modifications follow the proper approval channels and adhere to organizational policies and governance.
- Interactive dashboards and visualizations provide a real-time view of budget vs. actual performance. You can monitor KPIs, track variances and drill down into specific details for deeper analysis.
- NetSuite Planning and Budgeting enables you to create and manage rolling forecasts that extend beyond the traditional budgeting cycle. It allows you to update and revise forecast values at regular intervals, such as monthly or quarterly, to reflect the latest information and changes in business conditions.
Conclusion
Advanced financial tools automate at least some parts of the process and make budgeting season less stressful. By leveraging features such as real-time data integration, artificial intelligence, driver-based budgeting, rolling forecasting, and real-time reporting and analysis, you can develop a budget that keeps your business rolling toward its goals.
Need Help?
If you’re interested in improving your business’s planning and budgeting processes, contact us online or give us a call at 410.685.5512.
