ResourcesBlogKey Challenges and Common Pitfalls in Budget Enforcement

March 18, 2024

Key Challenges and Common Pitfalls in Budget Enforcement

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So, you’ve meticulously planned your budget and handed it off. Time to celebrate? Not so fast.

The hard part has just begun. Once the budget is finalized, enforcing it and kicking it out of the nest is more challenging than you think. The key to success is learning to operationalize the budget, ensuring compliance and accountability throughout the organization.

But, before you can come up with a solution, you must examine the issues. Here, we take a quick look at the top challenges and common pitfalls companies face when trying to enforce a budget.

Companies are Combating these Budget Enforcement Challenges

Lack of Visibility into Actionable Information

One of the biggest pain points in budget enforcement is the lack of visibility. More specifically, as it relates to getting actionable information in the hands of budget owners so that they can make informed, timely decisions.

In most accounting tasks, a sequence of events, a close process, and subsequent reports need to be emailed. These reports might have a simple budget vs. actuals analysis and a P&L. This might be all the information they get.

44% of surveyed CFOs said that lack of cash flow visibility damages their confidence that the business can remain competitive over the next year. A budget is ultimately a set of assumptions created at a certain point in time. And by the time the ink is dry on the page, the budget is already outdated.

Teams are not receiving the data when it’s fresh. When these department heads finally open and read the email, it’s already outdated. They’re not even getting the information until a quarter of the next month is behind them.

How can you make a good decision with information that’s a month old?

Right Brain vs. Left Brain

Every organization is an intertwined web of commonality and connectivity. One of the largest challenges when relaying and enforcing a budget is the communication gap between left brains and right brains.

In fact, poor communication costs companies more than 18% of the total salaries paid each year. There has to be a way to bridge the gap between people who work with numbers and those who don’t.

For teams that don’t deal with numbers every day, reports can seem like more of an annoyance, and budgets are problematic. Numbers are restrictive, and they really don’t want to hear about them. However, they also know these are the rules, and the business cannot succeed without following them.

Where’s the happy medium?

This is the challenge. Accountants think very linearly, while operational people just want to see action. Yet, we need both.

A General Disconnectedness

A recent study shows that 57% of businesses plan to hire more remote workers in 2024, while a Forbes report predicts the hybrid work model will account for a staggering 81% of the workforce by the same year.

This further undermines the teamwork needed to enforce the budget effectively. When working remotely, everyone has different priorities. People are busy at different times, located in separate places, etc. It’s much harder to organize.

Without a centralized request platform to understand all the budget components, putting the pieces of the puzzle together can be tough. Tracking spend becomes a virtual nightmare the bigger the team gets.

Disconnectedness also makes it challenging to explain to the board why a certain amount of revenue is showing but not translating to cash coming in the door (while cash is still going out the door). In this case, poor communication will create tension.

Common Pitfalls Throughout the Year

As we manage the budget on a month-to-month basis, we fall into many pitfalls throughout the year.

Lack of Education

Poor communication leads to accounting issues. Some of the greatest pitfalls accountants face can be solved simply by properly training and educating operations teams. However, this can’t be done if you ignore their questions or take too long to answer them.

It’s highly unlikely that anyone in operations has the advanced accounting experience to fully understand your message unless you take the time to explain it in a way they value.

Finance should never be the “NO” police. They should be a trusted advisor.

Committed Spend

This is a tricky one. How do you tell someone that wants to buy, they’ve already spent the money?

If you have a travel and entertainment budget, for example, let's say $10,000 for the quarter, and you have a big event on January 3rd, and you spend $9,800. Yikes. There’s nothing left for the quarter. You don't have any more spending left to go, but you need to know that you already spent that.

One of the challenges faced is that you may have incurred that expense, but you can’t see it. Maybe you charged it on a credit card or booked the reservation, but it hasn't already hit the books, it hasn't been spent, and it doesn't show up. But it is committed already.

How do you get that point across?

You need some method to track not only the things that have been expensed, paid for, and charged, but also those commitments that are out there. This is so you don't end up overspending without communicating what it is that's available.

Lack of Ownership

There can also be unclear responsibility in budget management. If you don’t track and report on something, how can you expect to hold someone accountable for that data?

If you don't measure it, you can't manage it—that is the basic precept. So, you've got to have details; you've got to track it. And you can't expect the stakeholders to do anything unless they have that information.

Equip Yourself with the Right Tools

PayEm is a global procurement and spend management platform that automates finance and procurement processes from request to reconciliation. Their budget module ensures real-time visibility into how companies spend money and actions that will impact the bottom line.

The PayEm platform will show you how and when a certain request is going to influence what it is that it is you own, from a budget perspective. PayEm offers key features like:

  • Immediate financial updates for proactive management
  • All-encompassing, comprehensive spend overview
  • Simple and easy-to-use interface
  • ERP integration that streamlines data

PayEm helps you create a culture of accountability and ensures that stakeholders have an optimized budget they can use to make intelligent decisions.

Summing it Up

Operationalizing one's budget is not only enforcement; it’s about empowering your stakeholders with the right tools and the right information to be accountable for owning that budget throughout the year.

Join us for a live demo and witness how PayEm can revolutionize your organization's financial workflows.

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