So what is the goal of a budget? At its core, it’s the marriage of functional objectives with the financial picture that results. Returns on sales and marketing investments into customer/volume growth, expectations on product/service mix, efficiency of operations, supporting overhead, investments into capacity, and additional initiatives. We use budgets to galvanize organizations around the overall business strategy and financial potential and to set goals for leaders and teams and hold them accountable.

While those are universal objectives, there are a number of other potential ways to orient and utilize the budget for the benefit of the organization. Examples of these are as follows:

With the rise of better data connectivity and software platforms (version control!), one of the trends in budgeting over the last number of years is an increase in budget assumptions from one function/department impacting that of another. The disruptions since COVID have accelerated this trend, as constraints in one area of the business are natural governors of activity elsewhere (inventory availability limiting sales, procurement restrictions limiting production, hiring challenges limiting fulfillment and/or sales, etc.).

When such constraints are identified, finance can determine where functional/department assumptions become limiters elsewhere, and then finance should do a very important thing – arrange a dialogue for collaboration between finance, the owner of the constraint, and the impacted function or department. Together with finance, the owner can gain transparency into the domino effect of the constraint, everybody will develop an understanding on how related assumptions will be incorporated into budget builds, and parties can strategize ideas on potential solutions for the constraint (leasing vs. buying, outsourcing vs. hiring, etc.). This is a win-win-win dialogue for the budget, idea generation, and team morale!

As the impact of constraints come into clear view, finance can focus on the related connectivity for the budget building process. This means incorporating the historical data and drivers in corresponding build templates (e.g., sales team performance and revenue build bringing in production volumes), and ensuring that the budget aggregation and update process allows for assumption connectivity to efficiently flow through to different components (e.g., if that product volume assumption is updated, it needs to make its way into the revenue build efficiently). This requires diligent process, and while software tools can assist in assumption updates and version control, they also often have limits as to how this type of connectivity can be incorporated (which should be a discussion when assessing such tools!).

Constraints can change the approach to the way unit economics are built up in the budget or forecast. What was once an output can become an input, these can change year to year, and therefore finance leaders need to keep constraints in mind and how they can be addressed in the budget alongside the capabilities of the team and the tools available.

With goals, target utilization, and defined connectivity for constraints, you are in a position to determine the required output(s) for the budget, and the mechanics necessary to produce said outputs. While we are now way past the start of the effort (that’s what being “budget ready” is all about!), when it comes to the actual budget construction this is about starting with the end in mind.

You’ve set the goals, identified the requirements, identified the groups for collaboration, and assessed data capture. Now you are ready to add in the team assessment, both from time availability and skill/capability perspectives. Knowing that the budget is going to take time away from team “day jobs”, and understanding what if any capability holes need to be filled, you’re ready to set up the process dominoes and build out the timeline. As budgets and forecasts often come with hard deadlines, the best approach is to work backward on the calendar to identify a target kickoff date for you to get everything done. While there is no perfect formula to attach time to each component (since they will often run in parallel), assessing each of these will give you some directional clarity on when you need to start, earlier or later than last year, for example.

By using the Budgeting and Forecasting Readiness Guide and Worksheet, finance leaders can reap the following benefits: 

Set The Tone & Narrative:

Getting a jump on the process planning allows more time to socialize objectives and secure buy-in from stakeholders. Note this is not a ‘receive only’ exercise, but an opportunity for finance to proactively propose goals and utilization objectives. Much like any dedicated, non-recurring initiative, the opportunity for finance to put on its marketing hat and pitch ROI for the budgeting effort is a leap forward from the concept of a ‘check the box’ or ‘necessary evil’ annual exercise.

Front-Run Cross-Functional Angst:

Budgeting is more connected than ever, and most businesses are impacted by one or more constraints with cross-functional spill over (no department or function determines its own budget in a vacuum). Socializing these constraints as part of the preparation for the budget process has a number of benefits, including ‘no surprises’ and earlier dialogue that can lead to idea generation and prospective alternative solutions. This collaboration can create changes and positively impact the budget build, an opportunity that may be missed or glossed over if attempted during the push of the build.

Measure Twice, Cut Once:

Let's Talk Budgeting & Forecasting!

Fill out the form below and a member of our team will connect with you to discuss your budgeting goals!