Have you ever spent weeks creating the perfect budget just to watch it slowly unravel mere days into the new fiscal year? Several common challenges of budget implementation can stunt your business growth. However, these issues are avoidable with the right strategies and budgeting tools.
Explore six of the most common challenges of budget implementation and how you can avoid them.
Measuring your ROI isn't always as simple as comparing your sales to your investment. Some departments have results that are difficult to measure. For example, marketing investments might increase your brand awareness or bring in new leads. However, you won't see a financial return for months--or even years.
Another challenge with measuring your return is tracking which departments contributed to a result. For instance, a customer might make a large purchase, but those sales weren't just a win for the sales department. The marketing team, design team, content creators and several other stakeholders all contributed to creating a positive experience for that customer that led to that purchase.
Without an accurate and consistent way of calculating your return, you won't be able to analyze and understand your current budget's accuracy throughout the year.
Source: CFI
Restricting your definition of ROI to financial returns will make your budgeting implementation more difficult. Instead, explore different calculations that account for other return types, for instance calculating a customer's lifetime value (LTV) or establishing non-monetary returns such as new leads or employee satisfaction.
Each department within your company has a personal budget agenda. These agendas can conflict with each other or the business's overarching goals. This creates issues as you try implementing your budget when departments make budget requests based on their priorities.
Keeping each department aligned with your business's goals is essential for ensuring your budget stays on track and doesn't neglect areas that are key to your organization's growth.
When you create your budget, involve all departments in the planning process. By doing so, you can ensure each department is aware of other needs within the company. You can also keep them focused on the bigger picture.
As the fiscal year progresses, you can remind them of those overarching objectives and growth goals whenever they make additional requests. Everyone stays aligned and focused on your business growth--instead of just departmental growth.
The average error rate of manual data entry is 1%. That percentage causes a much more significant loss when those errors are part of your budget planning and implementation. For example, large organizations say they lose $15 million annually from poor data quality.
Errors can come from:
Financial planning and analysis (FP&A) platforms not only save you time, but also save you millions of dollars. For example, instead of handling physical reports, departments can input budget data directly into a management system to keep the data accurate and avoid losing or misinterpreting information.
In addition, automating financial planning and tracking saves your company time, which frees your financial team to focus on business growth and the future rather than trying to keep up with tedious or repetitive tasks.
If the global pandemic taught businesses anything, it's that you can never predict the future. Your budget plan at the beginning of the fiscal year rarely looks the same at the end of the year due to unforeseeable circumstances, changes within your business or sudden growth.
If you don't have efficient processes for handling sudden changes or don't look far enough ahead, you might find yourself scrambling to adjust your budget at the last minute. This often leads to loss, miscommunication within departments and avoidable mistakes.
For example, salaries account for 70% of company spending. If you suddenly need to hire more staff members or raise salaries, that can impact your entire business's budget and hurt your growth if you don't create a plan for unexpected costs.
Parts of your budgets are flexible plans rather than a rigid guide for the year. When you plan your budget, be sure to establish processes for adjusting it regularly throughout the year to ensure you can quickly address issues to keep operations running smoothly if and when problems arise.
Revisiting your budget several times throughout the fiscal year also helps you keep it updated and on track. Keeping communication channels open between departments allows your teams to communicate sudden changes or needs. Then, you can address them promptly instead of waiting until those issues start affecting a larger part of the organization and causing a more significant impact on your budget implementation.
Data silos occur when departments don't share data. This can cause several issues, including:
If your financial team doesn't have the most up-to-date information or is missing critical details, they won't know how other departments are performing. As a result, they can't accurately track their returns, growth or necessary budget adjustments. You need complete data to make changes during the year.
Source: TechTarget
A unified financial planning software solution connects all departments within your organization. Instead of each department working with its own data management systems separate from each other, they can upload, update and access data from each department in real-time.
This allows your finance team to make better budget decisions throughout the year based on accurate data and resolve issues quickly.
All your departments might not know what your budget is. This can lead to overspending and poor financial choices that impact your entire business.
For instance, cash flow is one of the top business challenges that can cause an organization to struggle. This can occur when your teams haven't aligned spending with accounts receivable. If a department knows what it can spend but not when it can spend it, a cash flow problem might arise.
Issues can also occur when changes happen throughout the year that result in a budget shift. If all departments aren't unaware of the changes, they won't adjust their spending accordingly.
Keeping all departments involved in your budget creation, implementation and adjustments ensures everyone stays on the same page. Budgeting software allows department heads to access the budget and to see the latest changes to ensure they stay on track.
Regular budget meetings throughout the year that involve key stakeholders from each department also help remind budget owners of your business goals.
Vena Complete Planning helps you avoid data silos, collaborate between departments, reduce errors and plan ahead. Improve your budget implementation by connecting your teams with a single source of truth, giving them the confidence in your numbers as they keep your company's revenue growth on track.