8 CFO Tips for Annual Budget Management

By: Lucrum Staff

New year, new budget. Now what?

Creating an annual budget serves as a firm foundation, but effective budget management (expense tracking and reporting of this data) is the key to business success. Monitoring a business’ annual budget gives leadership a clear picture of the financial health of the company and allows for informed adjustments to the forecast.

Our CFOs have put together 8 tips for implementing budget management that is sufficient for managing the business.

1. Monitor Regularly – When it comes to budget management, the first key to success is consistency. A good accounting system must provide the ability to budget and then track expenditures by time frames that work best for the business (monthly, quarterly, annually, etc.) At whatever cadence the business decides to review the budget, keep those check-ins regular. Not sure where to start? Try a rolling 13-week view of budget vs. actuals and adjust from there. If the business has set up time periods within the budget (usually by month with an annual total), try adopting those periods for regular review and analysis.
2. Focus On Monitoring The Largest Expense Categories – Trying to monitor every minor expense category can bog down the process. Instead, start by building the budget as simple as possible to allow for more realistic monitoring and focus on the categories with larger expenditures. Complicated budgets tend to be ignored and are therefore of little use. On the other hand budgets that are too broad offer no insight into budgeted vs. actual spend. Business managers should find a healthy balance of detail that provides actionable insight. That balance will vary from business to business based on preference and usability.
3. Treat The Budget As Unchanging, Update The Forecast – We recommend a static budget treated as an unchanging foundational document, but the forecast should be updated based on budget monitoring. Successful businesses use the budgeting process as an opportunity to think deeply about the projected demand for their products and services, anticipated increases in expenses, strategic referral partners, business growth goals, and much more. Business leadership must track and understand the differential between planned expenses and projected revenues vs. what the business actually spends and brings in, and update forecasting accordingly.
4. Use A Professional Accounting System – We’ve seen plenty of cases where teams use Excel to create the budget and don’t take the extra step of entering the budget into the business’s accounting system. Inputting the budget into a quality accounting system allows for budget vs. actual reporting, which makes comparisons and variance analysis much easier. This means faster insight into whether a variance is cause for action. For example, perhaps a Property Tax Bill was due and paid earlier than planned for in the budget. While this month’s numbers will show in the negative, next month’s budget (where the tax bill was originally budgeted) will show unallocated dollars. A professional accounting system can help the business to quickly identify the variance as a consequence of timing with no negative impact to the annual budget. Consider seeking advice from financial professionals who can work with existing software or make recommendations for the accounting software that is the best fit for the business.
5. Manage by Location, Line of Business or Department – Budget management is only useful if it is sufficient to help manage the business. For businesses with multiple locations, departments or lines of business, this will mean breaking out the budget out so that data is actionable for the leadership of each internal organization. It’s ok if this doesn’t happen year one of implementing a formal budget, but do make it a goal to work towards as the business matures its budgeting processes year over year.
6. Set Up A Budget Notebook – Don’t stop at identifying budget variances, investigate the “why” behind them. Set up a budget notebook or spreadsheet to track comments and notes during each budget time period and for the entire budget process. These notes are helpful to track changes during the budget and to set up the budget for the following year. For example, let’s say a vendor renewed at an unexpected rate this year. If the vendor promised this rate, it’s worth reaching out and asking why it changed. This information could then be logged in the budget notebook as a consideration in budget planning for using that vendor next year (or even better, perhaps they honor the promised rate).

   These notes will also prove invaluable to future employees, ensuring the new manager will have access to the institutional knowledge from years past. Personnel changes are a matter of when, not if, and therefore should be planned for.

7. Develop & Document A Contingency Plan – Contingency plans help minimize losses and prevent panic. Management should develop both a contingency management plan for positive or negative changes in revenues and a crisis management plan for unforeseen events that affect business. Contingency planning should include positive matters such as new business direction as well as potentially negative issues such as the preservation of company assets. These plans can be as simple as action items in bulleted form, but they must be documented in writing and staff should receive basic training on the plan. Learn more about contingency planning in our post “How to Weather Unforeseen Events.”
8. Take Action Based On The Data – Once mature real-time budget management is established, businesses should not only track variances, but change the way the business is managed in response. Some examples include:
   • Setting aside money to use for planned capital improvements or business investments
   • Anticipating financial requirements for cash flow
   • Prove success for attracting investors or applying for a loan

New to budget monitoring? The help of a financial professional can help to get your budget management processes up and running smoothly. Book a free call with one of our CFOs with any questions or to learn more.