As a new small business owner, you have to figure out a lot of things you’ve never done before. One of them is how to create a business budget—and that can be intimidating, especially when you’re just starting out. Many small business owners will discover that after paying their business expenses, some of the money is foolishly spent. No matter how long it takes you to create a budget, it’s a good idea to take time and go through planning to improve your company’s fiscal performance.
Growing businesses should consider turning to outsourced CFO services to help them monitor and maintain a budget throughout the year. Outsourced CFO’s can use driver-based budgeting to create a dynamic and agile finance-centered process that helps stakeholders make informed decisions tied to operational goals.
What is a Budget?
Many people think of budgeting as their least favorite part of running a business—but if you want to be successful, creating and maintaining a proper business budget will be a critical component of that success. According to Investopedia, “ A budget is an estimation of revenue and expenses over a specified future period of time; it is compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a family, a group of people, a business, a government, a country, a multinational organization or just about anything else that makes and spends money”
Why We Do it.
Budgeting for your business is about making an educated guess as to how the future of your business’s finances will look. It requires examining what happened last month, what happened three months ago, and what this month last year looked like—then using that information to make wise financial decisions for the months and years ahead.
A budget can help to ensure long-term success for your business. A budget helps you to see past next week and next month and to next year, as well as the next five years.
More specifically, a business budget can help your business benefit by:
- Making it more efficient
- Pointing out funds left over that you can reinvest.
- Predicting slow months and keeping you out of debt
- Estimating what it will take to become profitable
- Providing a window into the future
- Helping you keep control of the business
What to Avoid
Rigid forecasts and budgets aren’t very useful. Things change as the year progresses, and you need to be able to factor in those changes and how they will affect your business. Building flexibility into your budgeting and forecasting will allow for more accuracy and better results in your business.
Today’s businesses want to be agile. Competing in a dynamic market means decision-makers need data that are timely, accurate and easily understood. Outsourced CFO services can manage this process and be the vital link between data collection and informed decision making.
But how can outsourced CFO services find the time to implement changes to their company’s budgeting, and what changes should they be making?
1.Reposition the budget as a priority for management
Traditional budgeting hits speed bumps most often when ownership of a task is hazy. Most budget managers have experienced this—having to reconcile data between spreadsheets from different sources, and then manually enter information.
This method can be a recipe for disaster. A better solution? Create a system where every party has ownership and responsibility for their part of the budget and data gets consolidated automatically. If you’re unhappy with how your budget process works, decide that you’re going to change things. Then convey this message to your management team, and get their buy-in. If you’re going to make budgeting a priority again, you want your best people tackling the job.
2. Decide whether the annual budget is actually working
The foundation of any company’s accounting and finance function is to produce timely and accurate financial information for the business. There’s no rule that says you have to make an annual budget. Take the time to analyze your annual budget process, and decide whether or not it’s actually providing you with real value.
Outdated, static budgeting processes simply cannot keep up with today’s lightning-fast economic environment. Outsourced CFO services use driver-based budgeting, on the other hand, to create a dynamic and agile finance-centered process that helps stakeholders make informed decisions tied to operational goals. This enables CFOs to transition from a tactical to a strategic leader, aligning forecasts and projections with external as well as internal drivers (e.g., changes to the corporate tax rate or labor contracts).
Driver-based budgets do more than static budgets, and they do it faster. These budgets enable active and continuous budget planning, rather than annual and fixed planning that culminates in hundreds of unread pages. Outsourced CFO services hoping to build confidence in their numbers can no longer rely on static budget tools to get the job done. In a world with increased regulatory volatility, supply chain mobility, labor market changes, and technology evolution, a CFO must be agile.
3. Invest in the right technology
In order to produce the most efficient forecasts and budgets, you need to invest in the right technology. Forecasting using only spreadsheets is cumbersome and slow, and won’t get the new system off to a good start. Instead, consider using budgeting software like NetSuite. NetSuite enables quick adoption of world-class financial planning and budgeting across lines of businesses with flexible and customizable deployment options. This technology offers comprehensive integration with Microsoft Office tools such as Microsoft Outlook, Excel, Word and PowerPoint with Smart View for Office. Common financial planning actions, such as spreading and allocation, are available within planning data grids rendered within Microsoft Excel.
Without a good road map and history of past experience, it can be very difficult trying to get to point B from point A. Knowing your numbers from sales and cost over the last few years will be the key to your future success.
Limitless Investment and Capital Outsourced CFO Services
Your business is unique. Limitless Investment and Capital will work with you to accommodate your specific needs, from short-term projects to ongoing support. Our outsourced CFO services generally include strategies to maximize profitability, overcome financial challenges, prepare for growth, or facilitate a transaction. Get in Touch Today!