Want to make your budget process more effective? Try our 5Cs of budgeting.
If your fiscal year follows the calendar year, it’s budget season! (Hooray?) Whether you’re already neck-deep in the budgeting process or still mustering the energy to get started; the truth is, this year feels different. In a world full of uncertainty, creating a meaningful budget can seem like a formidable task.
If you’re feeling stuck, maybe we can help. At Salo, we’ve found a budgeting process that kept us sane and will continue to provide our team with dependable, strategic financial direction no matter what the future has in store.
A little background (a.k.a., Who AM I to give advice?)
At Salo, our whole business is about matching senior finance, accounting, and HR consultants with organizations that need their help. So, not only do we have a great internal finance department; we also have access to an army of top-notch finance and accounting experts.
A few years ago, we spent several months collaborating with several of our consultants to research and redesign our budgeting process. Since then, we’ve evolved from a “budget owned by finance” to a “company plan owned by department leaders.” Instead of a rigid budget focused on perfect numbers, the company plan is a detailed roadmap that guides us to success. It is:
- Inseparable from our company’s strategic planning process
- Developed in partnership with finance, but ultimately owned by department leaders throughout the company
- Easy for non-finance people to use and understand (including Microsoft Power BI dashboards updated weekly)
- And, above all, flexible—easy to adjust as the year progresses
What you can do: The 5Cs of budgeting success
While it’s probably unrealistic to overhaul your budgeting process while you’re doing your budget for next year, you can use some of the lessons we learned over the past three years immediately. Try to incorporate these “5 Cs” into your existing budgeting process:
Context: Anchor your plans in the context of strategic goals and day-to-day reality.
Instead of just basing our budget on last year’s actuals and trends; our “company plan” is designed to support our long-term strategic plan. After our leadership team sets the long-term strategic plan, the department leaders come together to develop the budget—establishing a one-year company plan that moves us toward our strategic goals.
As the leadership team sets strategic goals, each area of the business weighs in on the tasks and associated expenses needed to achieve those goals. The end-product is a realistic budget that everyone owns and understands. (Note: If your strategic plan is already in place—or hasn’t been created yet—interview key company stakeholders about their goals for next year.)
Collaboration: Work side-by-side with company/department leaders during the budgeting process and throughout the year to build trust and increase accuracy.
We start by training new leaders on the budgeting process and how it works. Once they’re trained, our department leaders own their budgets. The finance team provides guidance as needed—checking in with them regularly throughout the year. Because every leader has access to real-time data about their budget, they often initiate meaningful conversations with the finance department—whether they need a question answered, an adjustment made, or have new ideas of their own.
Consistency: Keep reporting simple, predictable, and timely so it’s easy for internal stakeholders to succeed.
We provide the same information to our leaders each week. We focus on a small number of key metrics that every leader is trained to understand. Additionally, we provide intuitive tools that make it easy to drill down to deeper insights. This helps stakeholders keep their budget up to date—which helps everyone in the company thrive.
Compensation: Tie budget to leaders’ compensation.
At Salo, we reward leaders who achieve their budget (and by extension make headway toward long-term strategic) goals. Tying budget to compensation is another reason our leaders stay on top of the budget process and take it seriously.
Credibility: Make every mistake or course correction into a teaching moment.
As the old adage says, budgets are outdated the second they’re finished. We know that results will deviate from the budget, so it’s important to have details and assumptions to help explain variances. When the variances occur, we make sure the team understands what happened. We tell the story behind the numbers—showing what led to the variance, whether it was an error, an assumption, or an unexpected event. Explaining what happened and why is another way of collaborating, building trust, and building a finance-savvy team.
Things still feel uncertain. But, honestly, budgeting is an educated guess every year. No matter what happens, these 5 Cs make budgeting more accurate and accessible.
If you need help on budgeting this year or are interested in learning more about redesigning your budgeting process, Salo’s expert finance and accounting consultants can help. Fill in this form and Salo representative will contact you!
Dave Rust
CFO
