Financial budgeting only goes so far. It is a building block of the company strategy, but it is only a snapshot of an expected outcome at a point in time. Your managers at the coalface of your organisation need more detail, in real-time, that gives them the overview, insights and information they need day-to-day. This is what keeps them engaging with and implementing the company budget – and strategy – every day, and not just at “budget time”.
The previous articles in this series looked at what a modern, effective and appropriate budget tool looks like if you want to empower your non-financial managers. I then went a level deeper and explored how you can bring these capabilities into sales planning as well as looking at using scenario planning in the budgeting process. I’ve also touched on how this collaborative working relationship between finance and the rest of the organisation – because that is what it is – will speed up the budget process from months to weeks.
This last point is at the heart of this article because the reality is that an annual budget process is no longer relevant if it exists in isolation. Things change too fast and our definitions of short-, medium- and long-term are very different from what they were a decade or two ago. Forecasting constantly is the only way to manage the continuous change the business world is experiencing. And this, in turn, is only possible if you have the right tools in place.
Breaking the annual budget cycle
Your budget will be stuck in an annual cycle if it continues to take three to four months to complete. Remember, you are in the business of doing the thing that brings in sales, and not in the business of budgeting. This starts with, as has been mentioned in this series of articles, speeding up your budget process, and in parallel driving collaboration with and the empowerment of your non-financial management team.
The right budgeting toolset allows you to do both these things, and in addition, opens the door to regular forecasting to help you navigate change. Forecasting should leverage the effort already spent on the budget process and merge in actual results combining these two data sets to automatically generate a forecast at cost centre level, by account.
Business managers can spend an hour or two reviewing these forecasts to sign off or revise them, making the entire forecasting exercise a matter of hours for a manager, and days for the finance team – not weeks or months. This increased cadence is far more relevant to business today.
By now, it’s hardly going to be a surprise that I recommend that reporting should be a conversation between finance and the business. Before presenting company-wide financial data to the leadership and board in a way that quickly and clearly conveys the most critical results and indicators, the underlying data should first be checked by non-financial managers.
Finance teams have to tackle more data, both quantitative and qualitative, than ever before, just as required turnaround times get shorter and shorter. It's not reasonable or possible to expect your finance team to double-check every entry at posting level. But, who better to check entries and allocations are correct than the cost centre managers who generated the sales or spent the money in the first place? They know the numbers and context and can quickly and easily spot something that has been incorrectly allocated to their cost centre, data that is missing, or amounts they don't recognise.
Also, by now, thanks to the ongoing collaboration and empowerment that you have nurtured, they have a vested interest in ensuring the financial data for their department or cost centre is accurate.
To enable this reporting conversation, business-friendly software needs to automatically highlight variances from the approved budget figures. This prompts immediate attention, remediation or explanation by business managers and gives leadership visibility of areas of the business needing attention and insight into what is happening on the ground. A system that easily integrates notes and comments from operational managers about deviations from planned performance will streamline communication.
The collaborative, empowered team
This collaboration starts with non-financial managers genuinely being able to contribute to the budget numbers. But once the budget has been approved, the conversation doesn't stop. Non-financial managers need an easy and user-friendly way to continue to report back to their leadership as facts on the ground change. Critical budget variances should be flagged by the system and the non-financial manager has the opportunity to unpack and discuss these differences, providing essential information to the leadership in a fast-moving business environment.
Taken together these capabilities mean your non-financial managers should no longer be isolated mushrooms kept in the dark with no visibility or ownership of what is happening around them. And this doesn’t take a five-year change management program. Instead, it is down to giving people, whether they are in SMEs or large corporates, the tools to do their jobs easily, in a way that fosters transparency and accountability. This gives your people the time, brain space, respect and trust to own their domain while still feeling connected to the rest of the organisation – even the finance team!
As published - CFO South Africa - 18 September 2023