Budgeting is an essential skill for any financial manager. It allows them to make informed decisions about how to allocate resources and plan for the future.
However, even experienced financial managers can sometimes struggle with budgeting. Let’s look at four ways that financial managers can improve their budgeting for either the public or private sectors.
Focus on Cash Flow Management
One of the biggest challenges in budgeting is managing cash flow. Financial managers need to ensure that there is enough cash available to cover expenses, while also avoiding unnecessary debt. To achieve this, financial managers need to closely monitor cash inflows and outflows, and adjust their budgets accordingly.
One way to improve cash flow management is to prioritize expenses based on their importance. Financial managers should identify critical expenses, such as payroll and rent, and make sure that there is always enough cash available to cover these costs. Other expenses, such as marketing and advertising, can be scaled back if necessary.
Use Data Analytics to Inform Budget Decisions
Data analytics can be a powerful tool for financial managers when it comes to budgeting. By analyzing historical data, financial managers can identify trends and patterns that can help inform their budget decisions.
“Without analytics, it’s difficult to determine which data points are most important to your decision-making,” Resource Hub wrote in an article about data analytics. “There are probably items in your general ledger that only you need to understand. By analyzing your data, you can save the time you need to focus on communicating priorities and strategic forecasting.”
For example, if sales tend to be higher in the summer months, financial managers can allocate more resources to marketing and advertising during that time. Data analytics can also help financial managers identify areas where expenses can be reduced. By analyzing expenses in detail, financial managers can identify opportunities for cost savings, such as renegotiating supplier contracts or reducing unnecessary expenses.
Involve Key Stakeholders in the Budgeting Process
Budgeting shouldn’t be a solitary task. Financial managers should involve key stakeholders, such as department heads and senior executives, in the budgeting process, said David Barrick, a Canadian finance expert. That means creating a culture of collaboration, David Barrick said in an interview with Superb Crew.
“Leadership, to me, boils down to a willingness to collaborate,” he said. “Collaboration, at its core, demands for you to take charge when needed, and step back and listen when needed. Collaboration is more refined negotiation, often between colleagues but sometimes across political aisles and industries.
By doing so, financial managers can gain valuable insights into the needs and priorities of different departments, and ensure that the budget is aligned with the organization’s overall strategy, said David Barrick, who has a long career in public finance management.
Involving key stakeholders also helps to build buy-in for the budget. When stakeholders feel that they have had a say in the budgeting process, they are more likely to support the final budget and work to achieve the goals outlined in it.
Review and Adjust the Budget Regularly
Finally, financial managers need to regularly review and adjust the budget as necessary. A budget is a living document, and it should be adjusted based on changes in the business environment, such as changes in sales, new product launches, or unexpected expenses.
Regular reviews of the budget also help financial managers identify potential issues before they become significant problems. By reviewing the budget regularly, financial managers can identify areas where expenses are exceeding expectations or where revenue is falling short. They can then take corrective action to address these issues before they impact the organization’s overall financial health.
Budgeting is a critical skill for financial managers, and it’s one that can always be improved. By focusing on the above points, financial managers can create more effective and accurate budgets that help organizations achieve their goals.