The annual budgeting process is a stressful, time-consuming ritual that finance teams often liken to a weeks or months-long root canal. The reason for the stress is rooted in the simple fact that annual budgeting is inefficient and ineffective. Even with advanced tools, budgeting is really a process of guessing. No department head can be sure how much money they will need a year from now because it is impossible to account for all of the factors that impact a budget throughout the year.
Quarterly budgeting, when approached with the right strategy can be a much more efficient and effective process.
“All businesses want to drive with an end goal in mind! Do it, but be realistic that innovation, disruption and the economy are all factors out of our control. The “unexpected” happens every year and clear communication on a quarterly basis keeps us all in check!” says Sharon Tsao, CMO, Contemporary Staffing Solutions.
Continuous Budgeting Facilitates Accuracy and Agility
Continuous budgeting might sound like slow torture to finance pros, but it can actually reduce the number of hours spent on a budget. First, budgeting allows for greater agility. For example, if a business experiences an unforeseen issue with a product that must be discontinued, reallocating those resources from a settled budget can be a nightmare. However, when budgeting occurs quarterly, nothing is ever “settled,” which means department heads can work together with finance to adjust quickly to unforeseen issues and determine the best use of budget dollars in almost real-time.
A continuous budgeting process also allows for better accuracy and forecasting. A traditional, annual budgeting process requires teams to make future predictions based on things that happened a year ago. Relying on old data and old market conditions does not make for an accurate budget. It makes much more sense to look forward and analyze what’s coming down the pike to determine the best ways to allocate resources. When approached quarterly, budgets are developed based on accurate, recent data and current market conditions.
Continuous Budgeting Improves Resource Allocation
Annual budgeting can actually lead to poor resource allocation. Managers are often rewarded for staying within their budgets by a certain percentage. This seems like a healthy way to incentive managers, but it can often lead to practices that are detrimental to the business as a whole. Managers can become so focused on earning their own bonus that they fail to make the best decision for the company when said decision is too expensive.
Traditional, annual budgeting can also drive managers to drain their budgets at the end of the year if they have too much money left in order to protect next year’s allocations, even when those purchases are not necessary or beneficial to the organization. Continuous budgeting stops this cycle and makes it more difficult for managers to manipulate spend.
Are You Hiring Finance Talent?
If your company is seeking to improve finance processes, contact the expert A & F recruiters at Contemporary Staffing Solutions today. We can help you access talent who will help you build a more efficient, accurate and streamlined budgeting system.