Annual Budgeting is a Waste of Time: How to Improve the Corporate Budgeting Process

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Summertime often represents a slower period for many corporations, unless your responsibilities include budgeting. For companies with fiscal years beginning in January, June often marks the beginning of the long, inefficient and hassle-inducing ritual known as “annual budgeting.”

CFOs and finance teams know this ritual all too well. It usually starts with a simple spreadsheet and ends months later with someone ready to jump off a cliff.

The typical corporate budgeting process as it exists today is wildly inefficient because it relies on the input of dozens of individuals – regional mangers, sales directors, product managers, finance teams and other leaders in the organization. Tracking their individual needs in a constantly changing, dynamic marketplace is difficult enough, but when you factor in changing corporate priorities and managerial expectations, developing an accurate budget can be next-to-impossible. In many cases, the process is so inefficient that despite months of information gathering and pre-planning, budgets aren’t even finalized until the fiscal year has begun.

Tom McGinnis is a senior financial analyst at Wilbur-Ellis, one of the countries largest agricultural companies, and is all too familiar with the pain that can be inflected during an annual budgeting process. “Our division’s budgeting exercise used to be an annual hurdle that we had to complete for our corporate office and was seldom regarded as a business management tool internally for the division. We always started the process end of June and by the end of November it was finally locked down,” said McGinnis. “Not only was it a long process, but it would derail our managers – especially the sales team – from their top priorities and responsibilities, making it doubly inefficient. By applying a continuous forecasting approach, we keep the goals and the resulting financial effects in front of the management team on various levels of detail monthly and quarterly, helping them better manage their business, while eliminating and/or reducing the firedrill associated with the budget exercise.”

Wilbur-Ellis’ story isn’t unique. But with bankers, board directors and other financial overseers requiring hard-and-fast budgeting numbers, options are limited. One alternative is to consider transitioning to a continuous and rolling budgeting process, in which corporate budgets are planned monthly or quarterly rather than annually. Continuous budgeting can save countless labor-hours while improving the accuracy of the budgets themselves.

Enterprise Resource Planning (ERP) applications like JD Edwards are critical backbones of most corporations today. Across the company – from sales to finance to human resources – managers rely on the data in the ERP system. However, when it comes to budgeting, the ERP is often left out in the cold. The reason? ERP systems are notoriously difficult to extract data from. When it comes to budgeting, ERP systems can be completely useless because pulling reports can take days or even weeks, and in a rapidly changing budgeting process – with managers negotiating back-and-forth and corporate responsibilities in flux – a week-old ERP report is worthless.

Software tools that layer on top of the ERP system and integrate with the finance data can change that. Instant reporting tools, real-time access to constantly changing data and intelligent lock-down systems can make ERP an invaluable resource during the budgeting process, rather than the road-block.

Budgeting tools that provide instant access to real-time corporate data and intuitive, easy-to-use interfaces mean that instead of back-and-forth budget negotiating, companies can easily input and report on finance specifics instantly.

Instead of passing an error-ridden spreadsheet from manager to manager – which inevitably results in version-control issues and behind-the-scenes doctoring –budgeting software that layers onto the ERP can manage user-access, keep track of all the inputs and even help ensure that deadlines stay intact. With these tools, budgeting time decreases from months to days.

These efficiency benefits are obvious. However, there is another more important benefit and that’s better accuracy and forecasting which comes with continuous budgeting.

With annual budgeting, it’s difficult to predict market conditions in a particular business unit or geographic region months and months in advance. Yet, that’s what most companies expect. This leads to significant changes and inaccuracies when the actual time comes around.

With continuous budgeting, corporations can forget the predictions and instead make budgets based on real data and real market conditions. Because it’s easy to pull and evaluate information from the ERP using budgeting software tools, finance managers can bring current conditions to life and make budgeting decisions based on real-time business data, rather than year-old predictions.

Tom McGinnis at Wilbur-Ellis provides insight into how a move toward continuous budgeting benefits his company, “Today we are dynamic forecasting almost everyday — making adjustments and refinements in real-time. It can change the playing field for every major business move. By successfully using tools and providing information in real-time, the finance and budgeting team can really partner with the people who are making the money. We are providing the insight and the vision to help them maintain the strategic plan.”

Intelligent software integrated with ERP that provides easy access to real-time information, allows for intuitive, user-friendly reporting and instant drill-down capabilities is the key to not only reducing the wasted time and inefficiency of the annual budgeting process, but also improving the accuracy and intelligence of corporate forecasting.

About Jon Louvar, Planning Solutions Manager InsightSoftware.com

Jon has a vision and a passion for transforming antiquated and cumbersome financial planning practices to modern, real-time, user-empowered processes that bring change to the daily business. Jon formerly worked as a CPA for Ernst & Young’s assurance and advisory business practice, specializing in the manufacturing industry. His acute interest in manufacturing led him to spearhead and manage the financial reporting of a $3.5-billion company. During his work as a manager of financial reporting, he began to meld and utilize the creative aspects of accounting software. At that point, he joined InsightSoftware.com to help others modernize their practices.

Jon’s industry skills include knowledge of SEC reporting, financial planning and cost accounting, and experience with JD Edwards. He lives on a sun-soaked hillside in the Los Angeles area.

Learn more about InsightSoftware at InsightSoftware.com

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