Blow the cobwebs off the budgeting process
Without an efficient budgeting system in place that truly reflects every facet of the business, there`s little chance of the organisation achieving effective financial planning.
Budgets are crucial for business planning purposes, purchasing and managing revenues and expenses, but it`s time the finance budgeting process be overhauled from drudgery to efficiency.
Many South African companies still follow the traditional top-down approach to budgeting, in which head office sets the figures annually and each division of the organisation is handed its budget against which all business activity for the forthcoming year is measured. The process is centrally managed and inflexible.
Business needs to recognise the strategic importance of drawing on the direct experience and knowledge of cost centre managers by involving them in the budgeting process. Cost centre managers are more in touch with what is happening in their respective regions and are far better qualified to gauge how the forthcoming year`s sales and revenue are likely to pan out.
Equally, if top management does not involve cost centre managers in the budgeting process, they cannot be held accountable for the cost centre`s figures. Cost centre managers who give their input to the budget are more likely to buy in to the final budget, subscribe to it and make it work.
Cost centre managers who give their input to the budget are more likely to buy in to the final budget, subscribe to it and make it work.Kevin Phillips, MD, idu Software.
Another crucial factor inherent in budgeting is the toolset used to manage the process. For many years Excel has been the common application used to capture financial data and draw up budgets in spreadsheet format. While this may be manageable for small and medium enterprises that have few cost centres to oversee, managing the finance budgets of large organisations that drive hundreds of cost centres via spreadsheet becomes a logistical nightmare.
For example, a business with 20 cost centres is unlikely to struggle consolidating 20 spreadsheets. But considering there are likely to be separate spreadsheets for capital expenditure, travel, basic expenses, new business figures and various other sections, there will be more than seven different spreadsheets being sent to the 20 managers. This means there will be more than 140 spreadsheets for each manager to consolidate. Imagine a large company with 100 cost centres and 700 spreadsheets to consolidate - the version control and manageability of such as task is considerable and can often take up to four months.
The right finance budgeting software streamlines the budget and forecast capture and reporting processes. An appropriately architectured tool will be Web-based with an intuitive client front-end to provide maximum transparency in the budgeting and reporting process. It will be designed to remove the iterative process inherent in spreadsheet-type environments, and enable line management to have greater accountability for the financial reporting process without the complication of typical accounting environments.
Online data capture and transparency of data are critical to line managers involved in the budgeting process, making the process quicker and more efficient. Working on budgets for four months of the year is not what top management or cost centre managers are paid to do and certainly not what their annual bonuses are driven by. A reliable, user-friendly budgeting toolset makes the process quick and easy, and will not prey on productivity.
Kevin Phillips is founder and CEO of IDU Holdings. He has degrees in commerce and accounting, and started IDU with partners James Smith and Wayne Claassen in 1998. He is fast becoming a thought leader in his field, and regularly comments in the media on current affairs affecting business, as well as accounting, finance, budgeting and software. Phillips is a columnist for Accountancy South Africa and AccountingWeb UK, and has been featured in Sunday Times, Business Day, Enterprise Risk, Succeed and Entrepreneur. He has also appeared as a guest speaker on Radio 702, Kaya FM and Summit TV.