5 Tips for Speeding up the Annual Budgeting Process
The average time spent on yearly budgeting reports is five full weeks according to a recent survey about the budgeting process. While this was the average time, 11% of respondents said it took over three months at their companies!
Whether you are on the “better” end and it takes four or five weeks, or you’re on the lower end and it takes closer to twelve, everyone greatly dislikes the yearly budgeting process. In fact, a full 92% of professionals are frustrated with what they go through to create budgets.
These numbers come from a survey of 500 CFOs conducted by Datarails, a leading budgeting and forecasting automation software solution. While companies of all sizes don’t enjoy the budgeting process, small business leaders seem to dislike it the most, as oftentimes they don’t have the time, infrastructure, or experience to do it as efficiently as their established counterparts.
All of the processes, such as collecting financial data from multiple sources, comparing previous data, predicting future expenditures, and manually checking for errors, makes for quite a lot of slow and hard work for small and medium sized businesses.
But it all comes down to time. The more the process is dragged out, the less enthusiastic finance employees are about working on it. The more time spent on budgeting processes, the less time there is for higher value analysis and creating more value. Therefore reducing the time it takes to complete the budgeting process is critical in making finance employees happier, getting more value from their work, and helping the company be more prepared for the new budget.
1) Move to Rolling Forecasts
The whole point of reducing the amount of time spent on the budgeting process is in order to give the finance team a more optimal use of their time while at the same time giving the company better insights. With rolling forecasts you can do both at the same time.
Instead of intense weeks of work all concentrated at the end of the year, rolling forecasts break down the work (usually monthly) and focus on maintaining the yearly budget with periodic updates. This not only reduces the stress and frustration of the budgeting process, but it also keeps the stakeholders and executives informed all the time, creating more accurate and professional budgets and forecasts.
While transitioning into rolling forecasts may seem like a lot of work, it’s surprisingly a smooth transition thanks to all of the technology available today. With automated processes, the data is pulled from all different sources, and the periodic budget updates done during rolling forecasts can focus on analytics and action plans. For those companies that have already adopted rolling forecasts, there are always ways to maintain and improve them in a more efficient way.
2) Use Software to Improve Performance
Chances are if the company is ready to move to rolling forecasts then they are more than ready to move to budgeting and planning software solutions. The main reason why 92% of finance professionals are frustrated with their budgeting processes is because of all of the manual work involved.
FP&A software solves exactly this by eliminating the vast majority of manual entries and reviews. By consolidating all of the data from different systems, a finance team can save hundreds of hours of work, and having past data and industry wide statistics available will help teams make the most accurate decisions.
Budgeting automation software is exactly what the company needs- an efficient and reliable way to significantly reduce the amount of time spent on budgeting processes with reliable data in one source of truth. Automation tools are the backbone of reducing frustration and make all of the other steps far easier to implement as well.
3) Communicate Objectives Early On
The yearly budgeting process becomes chaotic rather quickly. Even with technology and rolling forecasts, which reduce the time and manual work, budgeting season never seems like it has enough time. Therefore involving everyone, and having a high level of communication is critical for a smooth and efficient budget.
Well in advance of the budgeting deadline, identify everyone who takes part in or reviews the budgeting process and go over goals and objectives. A general 3 step process to follow is:
Identifying clear strategic objectives- what the top goals are in a measurable way
Identifying clear financial objectives- how the company is going to reach the goals, also in a numerical and measurable way (ex. increase sales by 20%, raise the marketing budget by 15%, etc.)
Defining the time it will take to create these objectives (ex. 1 week to create the plan, 3 days for review, 2 weeks for final sign off)
4) Coordinate Meetings
The next step is actually making time for the budgeting process and the meetings that need to be done based on the objectives laid out. This is especially true for meetings with CFOs, executives, and stakeholders. Their time gets filled up quickly, especially around budgeting season, so creating meetings and communicating the importance of the timing to the overall financial picture is key to avoiding bottlenecks at the end of the deadlines.
5) Back up the numbers
Thanks to renewed market volatility and the speed of change that happens in young companies, what once seemed like too good to be true budgeting and forecasting numbers, is now realistic and achievable. However, stakeholders often want more proof than optimistic expectations from enthusiastic executives, and when each minor decision is scrutinized, it can add on many frustrating hours to the budgeting process.
The best solution for this is external benchmarking. This will test your own numbers to see if they are accurate and achievable and also prepare the company for stakeholder meetings in which there are external benchmarks to back up company decisions based on competitors of similar sizes.
This too is not as complicated of a process as it might sound like thanks to the services and tools available that can find and organize this information. External benchmarking is usually done by the finance team in order to adjust and compare figures based on factors such as inflation, market opportunities, and geographic locations.
Backing up the numbers is one of the rare circumstances where adding on more work actually saves time in the long run as well as provides a more accurate and smooth budgeting process for everyone involved.