Budgeting + Fooling Yourself = “Fudgeting.” Use these tips to help eliminate guesswork and reduce uncertainty in your forecasting process.
1) Get Started Early – Starting the budget process late in the year is common, unfortunately. The effort becomes rushed, stressful, and key insights can be lost. Or, the forecast isn’t finished until a couple of months into the new year, which also hurts. Don’t fudget – get an early jump. Many businesses and non-profits have a slower period sometime in the middle of the year. Use that time well and build your budget schedule into the culture.
2) Understand Trends – Most people watch trends, but not all understand them. It’s dangerous to assume that all negative trends will flatten out and all positive trends will continue. Understand the drivers of these trends and consider tracking them, if necessary. Understand cyclical impacts and how and why they come and go. Graph the data in a way that is truly insightful to minimize uncertainty.
3) Boost Analysis Frequency – If you view this as the “annual budget process,” you’re probably making this harder than it needs to be. Examine the level of change in your organization and the volatility of key line items. A quarterly or even monthly review may be warranted in some areas. Your analysis throughout the year will provide valuable insight which will make your forecasting process go quicker and smoother.
4) Use A Forecasting Tool – A simple financial modeling tool such as a spreadsheet, can help beyond just entering the basics. Create templates for each division or department. Create formulas for organization budget totals. Build an assumptions table for creating various scenario analyses and link this with your strategic plan process. Build year-over-year comparisons and other charts into the same file. Manage your staff, so that this evolves into standard practice.
5) Include Strategic Plan Efforts – New technology should impact processes and efficiency, and therefore, costs and headcount. A market threat should impact your marketing budget and maybe your sales process and revenue. Is there a significant growth option via a new product, service, partner or location? Consider all the elements of your strategic plan, including capital requirements. No strategic plan? Time to create one! Neither your forecast nor your strategic plan can be considered complete until they are linked to each other. You could be fooling yourself otherwise. In this economy, no business or municipality can afford that.
6) Anticipate – This is implied in the analysis and strategic planning tips above, but should still be emphasized. Anticipate customer/supplier price changes. Plan for potential emergency equipment repairs. Learn about healthcare costs and other employee benefits. Figure the impact of new hires and training vs. retirees. Proactive thoughts now could avoid more surprises later.
7) Just Do It – Some still refuse to build a budget at all. This is the worst form of fudgeting. They don’t believe it’s worth it or there are too many moving variables. But that’s exactly why you need to do it! Failing to harness the organizational insights from this valuable process puts you at much higher risk, both financially and operationally.
Understanding yearly, monthly and even weekly goals can provide the day-to-day clarity to run your organization. There’s no need to wing it or “fudget.” Improve your budgeting process and you improve your results.
Edward Livesay
