Every company should have an annual budgeting process. A budget sets a company’s financial goals for the next year, and it should be used throughout the year to measure financial performance.
Many companies look to their accountant to provide historical averages, and then just adjust those numbers by a percentage to create next year’s budget numbers. That can be useful for a first draft of the budget, but a couple more steps should be included in the process to ensure a company is reaching its growth potential.
First, a budget process should be driven by input from the departments that are responsible for the numbers. The departments should consider information such as what projects or expenses are in the pipeline, plans to expand to new markets, personnel changes, etc. While it’s up to the executive team to set overall company financial goals, individual departments are responsible for figuring out how to achieve those goals.
Second, there should be a process in place to hold departments accountable to their budget numbers. Departments should be continually reviewing their actuals against the budget numbers and providing explanations and (if appropriate) corrections for any discrepancies.
It’s important to complete the budget before the new year so it can be imported into a company’s accounting system and be included in forecasts and monthly or quarterly reporting of financial performance.
Sentinel Finance Group includes our clients’ budget and forecast data in monthly financial reporting to provide regular feedback to the executive team. We guide budget processes and facilitate department conversations about setting goals and how to effectively work in a budget. Finally, we provide guidance to the management and executive teams about tracking actuals against budget numbers and how to stay accountable to goals.
Sentinel Finance Group is a fractional CFO firm in Kansas City and provides outsourced CFO services and controller services to local businesses.
