Are you still budgeting with a spreadsheet? Tired of having budgets that aren’t followed? Or are you afraid of making costly budgeting mistake? If you answered yes…Then you’re in the right place.
Budgeting garners a variety of reactions. Some are annoyed that nobody ever wants to look at them or follow them. Others don’t know how to read them – so they just ignore them. Then there are some that just follow the mantra – everything is going to be alright.
But we’ve seen some budgeting errors result in over $1.9 Billion of deficit. California’s state Medi-Cal program reported a few accounting mistakes that ultimately led to $3 Billion of spending cuts to cover the projected deficit. Budgeting errors of this magnitude may not happen everyday, but errors of any size still impact an organization.
Every company needs a budget. But we have seen our clients spend all this time building a complex but effective budget for no one to use. Their management doesn’t know how to read or use the budget. Excel is the budget master – but it can get so complex that one mistake in the spreadsheet leads to disaster.
I love the following quote by Capt. Chesley B. Sullenberger III because a plan (or budget in business) makes all the difference. If you do not know, Captain Sullengberger successfully landed a plane in the Hudson River after its engines lost power.
“During every minute of the flight, I was confident I can solve the next problem. My first officer, Jeff Skiles, and I did what airline pilots do: we followed our training, and our philosophy of life. We never gave up. Having a plan enabled us to keep our hope alive. There’s always a way out of even the toughest spot. You can survive.”
Capt. Chesley B. Sullenberger III
Over the course of my career, I’ve written hundreds – if not thousands of budgets, financial models, business plans in Excel. It’s been cumbersome, annoying, and I can’t tell you how many times someone has broken it when they review it. It’s a pain and I figured it could be made easier. Every company needs a budget, but it’s made to be so complicated AND no one follows it.
The reason why no one follows those budgets is because of 1 of 3 things: they are falling into budgeting pitfalls, they aren’t following the budgeting principles, or they aren’t adhering to the budgeting rules. Let’s look at the budgeting pitfalls first!
In my career, I’ve seen numerous budgeting problems or pitfalls when working in my own companies or with clients. There was a lack of accountability. Employees ignored the budget, didn’t follow it, and found ways around it.
Additionally, the budget could only be applied to specific groups/managers as it was not a universal budget.
Their budgets resulted in power plays and managers played games, instead of leading their company forward.
Budgets also take time. I’ve spent months, working everyday on just one budget. The current process for preparing a budget takes too long.
I’ve also seen clients with budgets that were wrong from the beginning. They built their budget on faulty or unrealistic assumptions. Or they ignored their team member’s concerns. The team was fractured.
And they established goals that were too easy to reach or simply unachievable! Other clients spend all this time creating a budget only for it to be filed away when completed. The common budget process calls for a lack of follow up.
Feedback on budget performance is either slow or nonexistent. CFOs, controllers, and budget directors can’t do their jobs effectively without that feedback.
This is a big one… Executives and top management have hidden agendas or aren’t committed to having a budget. They’ve gotten this far without using a budget, so why need one?
Everyone sees budgeting as the CFO’s or accounting department’s responsibility. And it is! But it is also the entire team’s responsibility. In the following lessons, we will review both principles and rules you must follow.