What Does the Annual Business Budget Mean to You?

Different Views on the Budgeting Process within a Company

In all but the smallest companies, the annual business budget preparation involves many people. While finance generally owns the process, every division and department in the company has a role to play. Many employees are familiar with their part of the process, and even though many loathe these activities, they all have their own unique perspectives on the process and its purpose.

Division or Department Heads

Division or department heads are generally responsible for the P&L in their area, whether it is a department, division, or profit center. To them, the business budgeting process starts two or three months before the end of a fiscal year. They are given templates of revenue and expenses to fill out and return to finance or the budget administrators. Some companies require a zero-based budget, meaning every expense line must be individually entered and justified, which is a lot more work for department heads.

To them, the budget represents the anticipated performance of their business units, such as sales, expenses, profits, and losses. It communicates proposed growth through the release of new products and services, cost savings, etc. Usually, their budget preparation responsibilities end at their department level. During the budget year, they try to perform within the budget constraints, hoping to meet or exceed their budget.

In companies where periodic analysis occurs, these people are questioned when their business unit’s performance exhibits variances from the budget, and operational changes as well as financial forecasting often occur.

Budget Administrators

The budget administrator, or more than one in larger companies, is concerned with releasing budget worksheets or templates to budget participants. They collect this data and incorporate it into a consolidated corporate budget book. If their company still uses a set of spreadsheets, which is a very bad idea, they are in charge of maintaining these spreadsheets, programming formulas, functions, links, and macros, and troubleshooting these spreadsheets.

If the company has moved beyond spreadsheets, budget administrators focus on maintaining the budget model, releasing and collecting electronically filled-out worksheets from the various budget participants, consolidating the many budget sheets into a corporate budget book, and handling all revisions and iterations of the budget until it is approved. Some may perform analytics functions based on their system’s capabilities and company mindset.

VP or Director of Finance / Controller

The VP or Director of Finance, or in smaller companies the Controller, is involved in budget reviews and modifications throughout the budget preparation process. They also review the periodic analysis performed during the budget year. Their primary concern is the accuracy and completeness of the data and understanding variances of actual performance from budgeted numbers.

CFO, CEO, and Board of Directors

The CFO, together with the CEO and Board of Directors, is mainly concerned with the completion of the budget preparation process and its approval. They periodically review analysis results and question the performance of the company in response to variances from the business budget.

However, there is a lot more they should do. The CFO should always forecast the future financial position of the company, known as the future financial health. This can only be done through obtaining a complete and accurate forecasted Balance Sheet, one that is synchronized in real-time to the forecasted Income Statement derived from the underlying budget. Next-generation budget and analytics software solutions are designed to do that.

The Role of Next-Generation Business Budgeting Tools

Next-generation business budgeting tools are used at all levels of the budget preparation and analysis process. Each user category described above is a participant in the system, with specific responsibilities and access to the areas most appropriate to their function in the organization.

Budget administrators no longer have to struggle with unwieldy budget models. They can focus on properly administering the process, collecting reliable and timely data from budget contributors, compiling reports, and generating output that can be relied on.

CFOs can finally have the tools they need. Through smart budgeting technology, they have access to a budget that is an extension of their company’s actual accounting system. They can see what their company’s Balance Sheet will look like in the future and test more than one version of the budget to see the effect on the forecasted Balance Sheet. Most importantly, they can initiate changes in response to actual results compared in real-time with the approved budget.

CEOs and Boards of Directors can rely on the business budgeting and planning analytics processes to ask the right questions and respond quickly to actual business changes. This extends beyond the company to shareholders, customers, and vendors, all indirectly benefiting from a well-executed and managed budget and analysis process.

Conclusion

Understanding the different perspectives and roles in the budgeting process is crucial for a company’s financial health. By leveraging next-generation budgeting tools, companies can streamline their budgeting process, ensure accuracy, and make informed decisions that drive growth and success.

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