There are several best-practice methods to establishing a successful corporate budgeting process. While it may seem obvious, there is much more to robust business budgeting than meets the eye.
To achieve a thorough understanding of everything that goes into an annual plan for revenue and expenses, consider a few simple rules and forward-thinking strategies.
Main business budgeting methods
Before proceeding with the following best practices, take some time to familiarize yourself with the main business budgeting methods mentioned in Divvy’s business budgeting methods guide. This guide advises on Incremental budgeting, which takes last year’s figures as a starting point for the current budget.
An activity-based costing method (ABC) examines each activity and predicts future expenditures in detail by relying on these figures.
Next, there is zero-based budgeting. In this method, you start fresh with a clean slate. It begins by assuming that each department’s budget must be rebuilt from the ground up every financial year. This method is excellent for companies that experience significant inconsistencies in expenses and income.
Now that you’ve got a foundational understanding of a few business budgeting methods, here are the best practices that will take your new implementation to the next level.
Aligning your budget to your business goals
Make sure that you stay on top of your goals. You can’t begin building your budget until you know what you want to accomplish. Set goals that are specific, measurable, achievable, relevant, and time-bound—or SMART. Knowing how you want to grow will help you allocate funds more effectively.
Evaluate the past
A prosperous future involves looking at your past. Review your company’s performance from the previous year to understand where your business excels and where it struggles. Once you know the cause of past successes and failures, focus on where your expense management tactics can do better.
Build with future customers in mind
As your business grows, you can expect more customers. Stay ahead of the game by thinking about how your customer will benefit from your products or services.
New product and service development cost money, so you need a budget that doesn’t punish you for success. Build a financial plan that can scale with you so that you’re always meeting customers’ expectations.
Create a budget calendar
Your budget calendar should have a clear timeline. This timeline should show when to submit your budget, review it, and discuss it. Your whole team needs to know their responsibilities regarding submitting relevant forms and receipts.
Some flexibility is good, but you also need hard deadlines. When the whole company knows what they are supposed to accomplish at each stage, they can efficiently work for those milestones.
Communicate often and clearly
It can be hard to nail down what should go into your budget because it depends on many factors. The more you share with your team, the more likely they will contribute to a successful budgeting process.
Make sure that you communicate with your team often and clearly. Team members should always know what the stakeholders expect at every stage.
Creating a successful budget isn’t easy for any business. However, it’s not as difficult as some people make it seem. Take the time to learn the basics, and you’ll be well on your way to making an informed budget that is in line with your business plans.
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