Strategies for Managing Dynamic Budgets in Today's Economy

Managing a budget in today’s economy is like navigating the high seas on a sailboat. You know it’s going to be a rocky journey. Even if you’ve meticulously planned the budget, forecasts suggest inflationary pressures will rock your boat throughout the year.

Today, 67% of SMBs cite finances as their biggest worry. From unexpected expenses to shifting revenue streams, businesses face continual challenges in maintaining financial stability. Someone needs to be operationalizing the budget for the business to leverage.

Here, we examine actionable solutions tailored specifically for organizations to manage the complexities of an evolving budget. Companies can fortify their financial strategies by understanding essential principles, implementing effective strategies, and confidently adapting to market demands.

Here are a few actionable solutions to consider when building and enforcing a budget:

Facilitate Bilateral Information

You must operate a two-way street. If you want to manage the budget as a fixed amount or a target, you must keep the stakeholders informed.

Consider a salesperson on the revenue side. They may view the budget as a one-time calculation, perhaps done in the fall. But that’s about it. And if that’s how they see it, you’ll likely hit a wall.

Things never unfold as they should, and a lot gets in the way. Thus, bilateral communication is essential for everyone to meet their goals. What does that mean? It means getting everyone involved in the process.

Data is flowing both ways. You're getting insight from the stakeholders as to what's changing, and then you're processing those changes and giving them updated numbers. That’s why, it’s a wise idea to report actuals against budget, as well as a forecast.

Acknowledge Ongoing Commitments

Business is an ever-changing environment, and you must learn how to adapt.

In the age of subscriptions, monitoring commitments has become more crucial. You need some kind of method to not only track expenses, payments, and charges but also oversee ongoing commitments. So, even though that yearly subscription is coming out a month at a time, stakeholders need to know that money is not there to spend. It’s already been committed.

The first step is automation. Research predicts the international SMB software market will continue to rise at a CAGR of 7.4% until 2027, reaching a global value of roughly $85 billion. That’s a lot of digital tools at your fingertips.

Assign Clear Responsibilities

Empower budget owners with specific accountability for financial reporting. Allowing that responsibility to fall on the shoulders of budget owners makes enforcement a much more cohesive process.

This means educating other stakeholders in the organization so they can be a valuable seat at the table and fully understand the subject matter.

It should not be a “finance” budget. It's a budget that finance helps put together.

Thus, the budget owners and stakeholders must have that data in their hands. They need to own it and understand it.

For example, revenues. The Chief Revenue Officer puts together customer projections, and accountants are expected to give feedback and maybe even run a few reports. But they certainly don’t own that strategy. The CRO does. The accountant gets zero commission and has no real skin in the game. This is why it’s so important to assign clear responsibilities over the budget from the very beginning.

Encourage Collaborative Efforts

Actively promote team collaboration for better financial decision-making. This is always a win-win for everyone. Empower budget reviewers, managers, the C suite, etc., to be heard and involved. This is how teams gain real-time visibility into the budget and how you can create a culture of accountability.

This also means ensuring stakeholders have an operationalized budget to make sound decisions at the right time.

Also, consider consequences. If there are no punishments for breaking the rules, everyone just breaks them. Without consequences, you're not going to achieve the success you need.

Whether you manage up, down, or sideways, if you have a budget and a forecast, you have to have total buy-in.

Create a Council

Finance should be a part of the team, not apart from it.

Consider creating a team of senior-level management that can help enforce the budget through collaborative efforts. Grab the head of marketing, the head of sales, the head of finance, the head of product, the head of development, and the head of engineering.

Create a Knights of the Roundtable meeting where all direct reports to the CEO get together and share what’s going on. This is prime time to discuss impacts that affect different parts of the company and how you can better align the budget and adjust accordingly.

Facilitate Cross-Departmental Understanding

Proactively bridge knowledge gaps between finance and other departments.

It can be a real challenge to explain to the board why you can show a certain amount of revenue, but it's not translating to cash coming in. And yet…cash is still going out. That's a hard thing to do. But, you have to find a way to effectively translate that information in a way they can understand it.

Creatives tend to be visual learners, and the brain processes images up to 60,000 times faster than text alone. This is one way to reach them. Use graphs over stats.

Consider presenting the information in two different ways:

1. GAAP basis financial statement: This is for bankers, investors, and fiduciaries
2. Cash basis financial statement: This is for operational people and creatives

For day-to-day operational people, the cash reporting is much more valuable to them than the GAAP basis. You have to bridge that gap and figure out what makes sense in your particular situation.

Rethink the Calendar Month

Maybe the calendar month is what’s creating issues with budget enforcement and management. Some companies have adapted by cutting off the books by the third week of each month. So you’re calculating the last week of the prior month, with three weeks of the current month. This way, you can always produce reports by the first of the month.

Just remember, there are some things you can't do. For example, you can't have a bank reconciliation through the end of the month if you're cutting off on the 25th. You can't reconcile your bank until you get to the 1st, but there are ways around that.

You still have a full month of expenses and a full month of revenue, even if it's three plus one. The illusion is that the calendar month must end before reporting can begin. No one says you can’t be flexible.

Final Thoughts

Navigating the treacherous waters of an evolving budget demands a strategic approach and a willingness to adapt to changing tides. As financial uncertainties loom and market dynamics continue to shift, it becomes increasingly critical for companies to implement actionable budget solutions tailored to their unique circumstances.

PayEm is a global 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 (like commitments). Ready for a free demo?