Here are the ten biggest problems businesses face with their budgets
1. Budgets are time consuming and expensive;
2. Budgets don't help the managers in different departments;
3. Budgets don't focus on shareholder value;
4. Budgets prevent fast response because they're too rigid;
5. Budgets maintain rather than reduce costs;
6. Budgets stifle product and strategy innovation;
7. Budgets focus on sales targets rather than customer satisfaction;
8. Budgets don't reflect the company strategy;
9. Budgets make managers dependant on a plan so they don't think for themselves; and
10. Budgets lead to unethical behaviour because employees crook the books to make it look like they're following them.
These are big budgeting problems. The result? Businesses stop using budgets and they lose out on the true benefits of good financial management.
That's why I'm going to introduce you to one simple step-by-step process you can use to overcome all these budgeting problems.
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Ten budget templates to forecast and manage your company's costs
You can use them individually or while you create your operating budget. You'll draw figures from these budgets so you can keep control of costs and maximise profit. Each budget chapter comes with a free Excel budget template for you to customise and use straight away.
Follow this simple process to overcome these major budgeting problems
Step 1: Sit down with all your managers and discuss their needs
Understand exactly what your managers need from the budget. This way, it will actually help them reach their various department al goals.
Step 2: Work out exactly what your budget needs to do to work with your company's strategy
Discuss this with your managers and top executives. Your budgets are the basis of your financial plan. Work out how you can use it to fulfil your company strategies and then use it.
Step 3: Take your shareholders' expectations into account
If your shareholders value community outreach for example, they'll expect to see this in your budget. Find out exactly what they want from your company so you can include it in your budget.
Step 4: Draw up the budget
Use the budget templates in the Master Budget Series
to draw up your budgets quickly and efficiently.
Step 5: Review the first draft of the budget with all you managers
Get feedback on your first draft and find out if there are any major changes.
Step 6: Create a rewards programme for spending carefully
It's better to slightly over-budget and underspend than for managers to spend every cent of their budget because they're scared you'll reduce their money if they don't use it.
To get departments to spend carefully and wisely and reward them for it. Then, each month, you can take the money they didn't spend and put it into profits.
Step 7: Train your managers on how to work with the budget
Explain to your managers that the budget is a guide. If they need to react quickly to an emergency situation they must come to you at once to discuss use of the emergency fund in your budget.
They should also keep suggesting ways to improve the company. If you need to add extra expenses for these ideas into the budget, you can do this when you review it.
Step 8: Review your budget every month
Look for any errors or deviations from the budget. If there's anything that doesn't make sense, investigate it to see if someone crooked the books.
When you do this, adjust your budget to accommodate changes in your business operations.
Following these eight steps will help you overcome any budgeting problems.
If you need more guidance when it comes to actually drawing up your budget, check out the Master Budget Series