March 24, 2024
Agility in Financial Planning: Adapting Your Budget for Growth
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Stay informed with the latest trends and best practices in finance and procurement.
March 24, 2024
Stay informed with the latest trends and best practices in finance and procurement.
In the realm of business, the ability to adapt and refine one’s budget is crucial to sustained growth and success. The key is to always have the money to do exactly what you need. However, is this the reality?
The global economy is comprised of continuous moving parts. As companies navigate through dynamic market conditions, regulatory changes, and internal shifts, the need to manage finances with foresight and agility is universal.
Here, we take a quick peek at modern trends designed to curtail your budget woes and align more efficient strategies with current needs.
True evolution only occurs with pliable subjects. A smart business implements adaptable budget practices that work to explain events as they unfold. In some cases, this might require a 12-month rolling forecast. As ongoing changes occur within the business, this month-to-month story evolves.
The more you add to a forecast, the more relevant it becomes. Having that opportunity for real-time comparison makes it extremely beneficial to understand where you started, what was expected, and how you’re actually trending against that; while taking into account the ever-changing business environment.
For example, buying in bulk usually gets you a better deal. We all look for ways to maximize our spending while getting the best value, and this also requires work on the accounting end. Those costs must be amortized and assigned accordingly.
However, accounting also needs to find a way to explain cost spread without just handing a report to operations, especially if it's a report they may not understand.
If financial reports are not prompt, they are not precise. Old numbers cannot help you maintain budget relevancy. They never will.
It’s imperative to deliver timely and accurate reporting to ensure ongoing accountability. If accurate data is not presented, how can you expect the business to perform and thrive? We live in a world where continuous real-time data is available, rendering outdated data essentially useless.
For example, say $11,000 of the budget is assigned to a yearly subscription, which is only deducted monthly. From a cash perspective, that money is already spent, but it’s still in the account. Accurate and timely data will show the expense is already allotted and earmarked.
So where is the happy medium between speed and efficiency? When there is no real-time data, but you have a committed budget, how do you communicate that across an organization without flooding them with reports?
You need to devise ways to report as soon as possible, and sometimes, this means giving up a little bit of accuracy in order to deliver. If you can give them a ballpark, that’s still better than nothing at all. This means being materially accurate, instead of down to the penny.
Don't be afraid to make mistakes. At least if you're putting something out there, you can always put some framework around it and say, this is an estimate.
It's critical to continuously reforecast expenses, revenue projections, and variable costs. The larger the company, the more likely you will have to continuously revisit the budget and adjust it accordingly.
No matter what a business does, it is critical to periodically update the data and look forward.
This process also includes understanding where you stand in the grand scheme of things. How can you expect someone to do their job effectively if you don’t give them the right information?
How can you mitigate the effects of delayed reporting on budget management? This requires a holistic view. You need to understand where each department is coming from, what their needs are, and what they’re trying to convey. This enables a much more effective meeting of the minds.
How can you understand where someone is coming from, if you don’t ask the right questions? When an accountant writes out a budget, it’s not a one-person operation. There is input coming from all sides. Thus, the output has to mean something to everyone, in every channel.
Making data meaningful starts by sitting down with stakeholders and asking the right questions. A smart budget strategy enables you to compile and classify the data in a way that makes sense to them. This helps to discover key data points and historical actuals. Feel free to also discuss who the top vendors are and trends that have occurred over the last quarter or YTD.
Work to thoroughly understand the story behind the brand and who interacts with it the most. In these conversations, you might identify additional opportunities for cost savings. There may be a strategy to consolidate vendors and streamline the information in a way that engages them and adds value. You never know until you ask!
That’s the entire point. You want to reach a place of mutual understanding and agreeance. A camaraderie of sorts. The idea is to engage and reaffirm the information you’re assuming is right, encouraging collaboration and enhancing the relationship between accounting and operations.
Speak in a language the right brain understands. Make sure people understand what you’re saying beyond crunching numbers. Two plus two does not always equal four, no matter how simple it sounds.
Taking into account that different individuals communicate differently, it’s important to present financial information in a way everyone will understand. This may require formulating more than one presentation for the same data.
If you're dealing with an Ops person, maybe they understand bar charts and pie graphs better than a wall of numbers, whereas a finance person or an investor understands spreadsheets better. Understand what the target audience is looking for, and then deliver.
Adaptability is the key to financial resilience and sustainable growth. Implementing these strategies to adapt your budget enables a business to better allocate resources, leverage emerging opportunities, and adjust spending priorities.
In today’s economy, a budget isn’t really a “set it and forget it” practice. It needs to be continuously revisited throughout the year and tweaked to best fit a business.
The ability to adapt a budget throughout the year is a critical skill for staying competitive and achieving long-term success. As companies continue to embrace the fluidity of the current market, proactive budget adaptation is an intelligent response to change and a strategic imperative for maximizing value creation.