Organizations need budgets to appropriately plan their upcoming operations regarding revenue and expenses. Rarely do budgets between different organizations involve the same accounts, procedures, calculations, assumptions, etc. This makes templates for budgeting purposes insanely difficult to share. Thus, every organization (for-profits, non-profits, government agencies) feels their own stress and strain in developing their very own budget processes. There are, however, certain budgeting best practices that can be shared between organizations. This article discusses the most common budgeting best practices that we here at the MSX Group have seen over our twenty plus (20+) years of budget implementations – budgeting best practices that we gladly share with the budgeting community at large.

Focus on the Known

Existing contracts are easily accounted for in the budgeting process whether these are revenue-generating contracts, contractual expense obligations or a mix of the two. These should be included in the original budget setup process and may be as easy to incorporate into the budget as bringing in prior year actuals (which any budgeting software solution should be able to handle).

In reviewing these existing contracts, keep in mind that some of these may be coming to an end during the next year while other contracts may be starting next year and not yet included in current or prior year actuals. Budget for both situations accordingly.

 

Plan for the Unknown

Planning for unknown revenue and expenses can be tricky – perhaps even more of a magic show or sleight of hand – but some means should be established to accommodate unexpected changes to operations. Unexpected expenditures may be more important to include in the budget than revenue; and even a single account entry to allot a certain amount of money to cover such unexpected expenditures is far better than not planning for anything unknown.

Encourage Input

No single person in an organization – not the CEO, CFO, CIO, Warehouse Manager, COO – will be aware of every single source of revenue or outgoing expense. Even sole proprietor businesses are dictated some revenue and expenses from outside agencies. Therefore, the more input from more people the better.

Implement a budgeting software solution that is easy to access (web-based input and review options are great) and includes security, familiar templates, instant consolidations and based on your general ledger’s chart of accounts for quick comparison to actuals, prior budgets and prior forecasts.

Review and Update Often

Many of our clients only complete an annual budget. They finish a budget before or around the start of each calendar/fiscal year and may not even look back at it for the rest of the year. This may answer some questions about the upcoming year for some people, but so much more could be gleaned from the budgeting process. How accurate are those budget balances? How do they compare to actuals as future months are closed in the accounting books? If the budget balances are significantly different than actuals as each month is closed, perhaps the remaining budget months should be adjusted to reflect those changes. After all, year-end bonus payments and salary increases for the following year are probably going to be affected by those changes. Look back over the original budget balances and make changes as needed.

 

Keep It Simple

A long-drawn-out budgeting process more often defeats the budgeting process. Keeping the input simple is just as important as accurate budget balances. Otherwise, budgeters will develop a dread of budgeting and avoid it whenever possible.

Give your budgeters access to just the input screens, the accounts and the reports that they need for their part of the budget. Try not to overwhelm them with details that do not affect their roles in the organization. They will appreciate not having to sift through unrelated data and be more likely to finish their budgeting tasks in a timely manner.

While there are numerous other best budgeting practices, these are five (5) that readily come to mind for us. Many best budgeting practices may arise from specific industries, government regulations, company policies and other similar driving forces which simply must be addressed in certain budgeting requirements. These five practices, however, apply to many of our clients regardless of industry, regulations and policies. Do not be shy in sending us your best budgeting practices. We are always looking to expand our understanding of community needs and would be glad to share your ideas. Reach out to us at info@msxgroup.com or visit us in our Message Boards.