Tips on Simplifying the Budgeting Process
As we go deeper into the second half of 2015 an article from 2011 has started recirculating in accounting and finance circles. Why? I am not sure. But, maybe the realization that we are no too far from autumn has people realizing that means we are not too far from…BUDGET SEASON!
There are not many words in accounting and finance that elicit a stronger negative reaction than BUDGET. That should not be surprising since the annual budget process in many companies takes dozens or hundreds of hours, causes staff to fall far behind in their regular work and results in a product that is frequently obsolete by the time it in completed.
Russ Banham’s recycled article discusses how and why many companies are eliminating the one annual mega-budgeting process and replacing it with a more agile and adaptable rolling forecast, done either monthly or quarterly. Essentially the time invested in the budgeting and planning process is spread throughout the year, with new information being added regularly, not just annually. This process can be done in Excel or in one of a number of planning products on the market…and they are not all as expensive and complex as they used to be.
In order to be more agile the forecasting cannot be in the same excruciating level of detail as it has been done historically. A small real world example: What benefit is gained by budgeting FICA, FUTA, SUI, health, dental, life, LTD, STD and other employee related costs by department by month? Several of my clients have concluded that the answer is none, and we have begun forecasting payroll taxes and benefits as a single number for each department based on a percentage of pay, an amount per person or some combination of the two. That way when headcount changes we don’t need to reforecast a half dozen line items…the amount recalculates automatically as headcount and salaries change. We haven’t missed the detail.
Start by asking yourself: “What would I be missing if I did not have a static annual budget?” I bet you will find that you can meet most of those needs with a less rigid, more flexible rolling forecast. Then ask yourself about each line item in your budget: “What would I be missing if I did not have a projection of the next 12 months in this level of detail?” You will be surprised how many simplifying opportunities you find. It is liberating!
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