Before we go forward, a bad budget is not the fault of the CFO, controller or anyone else in the accounting department. Instead, it’s a cultural problem in the organization. Some issues that are probably already part of the corporate culture but many times ignored include:
Successful companies that have a successful budgeting process and incorporate leadership are both disciplined and enforce accountability.
Here are some budgeting statistics that should wake you up.
1 out of every 5 budget processes are flawed.
Over 87% of executives surveyed say they are dissatisfied with their current budgeting or planning process.
According to the Balance Scorecard Collaborative, 9 out of 10 companies failed to execute their strategies regarding how well companies achieve their vision.
There are 4 barriers that cause companies to fail to implement their business strategies.
You know if your budgeting system is effective if you experience any of the following:
Start the budget process 6 months before year-end. If you haven’t started yet, it’s okay. You want to create a good budget, not a rushed budget. Then establish target dates for deliverables. Finally, establish who is accountable for what. Have the budget line items match the general ledger accounts as much as possible. This does not mean thousands of line items. This makes monthly reporting easier.
What about budget iterations? Many companies have dozens of budget iterations, but no one has time for that. Therefore, there should only be 3 iterations of your budget.
Allow people to take action, make decisions, and to do the right things.
Remember, budgets attempt to describe the potential of the business. Since the future of the business changes, this makes writing an accurate budget almost impossible. Some things are beyond your control, so why not control the factors you can?
What a budget represents are these two bedrocks of success: a target and a way to measure your progress.