Modern Budgeting Methods To Replace Your Outdated Process
If you’re still using spreadsheets to build and manage your budgets, you’re probably slowing your company down, making it vulnerable to data breaches, and not adequately planning for the future. Modern budgeting tools and techniques embrace automation, collaboration, and frequent forecasting to help companies thrive.
Traditional budgeting techniques have failed to keep up with the ever-evolving needs of businesses. COVID-19 has changed how we work and has made modern budgeting tactics necessary.
Online conference calls have replaced meeting rooms, making online collaboration a necessity rather than a nice-to-have capability. And while a stable economy once helped financial projections play out pretty accurately, unprecedented levels of uncertainty mean that companies now have to plan for various scenarios, and need forecasting tools that can help them do that.
Fortunately, finance teams are embracing technological innovations to fulfill their changing budgeting needs. According to a survey by McKinsey & Company, 43% of CFOs plan on using software to streamline budget planning. Nearly two-thirds of the CFOs surveyed said they will implement agile forecasting techniques in response to COVID-19.
Keep reading to learn about the differences between traditional and modern budgeting, and which techniques and tools you need to implement to update your processes.
Modern budgeting vs. traditional budgeting
There are several key differences between traditional and modern budgeting.
Traditional budgeting is usually done manually on spreadsheets, which makes the process complex, time-consuming, and vulnerable to human error. This system is riddled with problems. It blocks transparency by keeping information siloed in outdated databases, making collaboration between departments nearly impossible. And once a budget is created, it’s difficult to track spending. Updates have to be made manually and collaboration is a pain in the neck.
You’re likely familiar with the top-down and bottom-up approaches to budget planning, which are hallmarks of the traditional process.
With top-down budgeting, executives set budgets for departments. This budgeting style can be beneficial because executives have a holistic view of the company’s needs that individual teams lack. However, this method takes the power away from the people who will be spending the money, which can make controlling spending more difficult.
Conversely, bottom-up budgeting puts the power in the hands of those in lower-level positions who spend the company’s money and are more involved in its day-to-day operations. Budget owners are more invested in ensuring their team members spend within the budget than executives are because they’re responsible for their team’s numbers. However, this budgeting approach is siloed, as budget owners often lack insights into the needs and goals of other departments.
Modern budgeting brings financial planning into the 21st century by embracing technology to streamline the entire process, centralize information sources, and help finance leaders make decisions based on real-time data.
How to modernize your corporate budgeting process
These are the hallmarks of the modern approach to corporate budgeting.
Automate the process with budgeting software
Ditch Excel. Does anyone really like spreadsheets anyway? Just because Excel is where you learned how to build a budget doesn’t mean that it’s still the best tool for the job.
There are lots of budgeting software options available that are built to save you time, help your team collaborate, and give you visibility into changes and actual spending. Budgeting software can also automate tasks for you, like forecasting. Why spend your precious human resources on tedious tasks that software can handle for you?
Embrace zero-based budgeting
The traditional budget-building process starts with historical figures. Last year’s budgets are carried over into the new budget. But what good does this do when the past is nothing like the present situation?
The modern budgeting approach starts the budget at zero. You have to justify every expense before adding it to the new budget, instead of grandfathering in last period’s figures. This process minimizes wasteful spending and ensures every dollar has a purpose.
Implement rolling forecasts and budgets
Old-school corporate budgeting methods involve forecasting spending just once a year. However, static budgeting is simply impractical when you consider how quickly situations change.
Modern budget control embraces rolling forecasts to update budget assumptions throughout the year. Rolling forecasts help companies be more nimble so they can quickly reallocate resources based on changing needs. A budget needs to be able to change. Why set $100,000 of your operating budget aside for travel during the year when a pandemic hits when you should reallocate those funds to meeting more pressing needs?
Plan for various scenarios
Traditional budgeting plans for business as usual, which can be useful when business is predictable. However, as we’ve seen in the last year, the world’s economy can change in a matter of days.
Modern budgeting braces for uncertainty by planning for more than one scenario. Future-proof your company by creating plans for business as usual, high growth scenarios, and worst case scenarios (pandemic, anyone?).
This exercise helps you respond more quickly to whichever of these scenarios occurs.
Essential modern budgeting tools
Digitization is the crux of modern budgeting. Tech automates and streamlines tedious processes to free your finance team up to take care of the critical initiatives that can’t be done by software.
These modern budgeting tools can help you update your company’s financial planning process, save time, and collaborate more easily.
Lola.com is an all-in-one spend management solution that comes equipped with powerful budgeting tools that are ideal for agile, growth-minded businesses.
Lola.com promotes collaboration by letting you create and share budgets quickly. This solution facilitates modern budgeting by letting you roll with the punches and adjust budgets in a few clicks.
We all know that setting a budget is useless if it isn’t adhered to. Lola.com helps you control spending by letting you issue secure physical and virtual corporate cards to everyone at your company. Budget owners can tie cards to specific budgets and restrict spending amounts, vendors, and purchase types. Lola.com maps every transaction to a budget. If the transaction doesn’t fit the budget’s rules or is over the spending limit, it will be blocked, making overspending virtually impossible.
Plus, Lola.com facilitates modern budgeting by giving budget owners unprecedented visibility into actual spending. When everyone at the company has a card, all purchases can be tracked in real-time on the platform.
Jirav is an FP&A solution that facilitates modern budget control with a bevy of agile features.
The platform gives budget planners the flexibility to start next year’s budget at zero, or build it with historical figures. Forecasting for multiple scenarios is simple thanks to financial modelling features that let you test out scenarios on the fly. Because Jirav lets you transition away from spreadsheets, collaboration is easier and your financial data stays safe within the platform.
NetSuite’s ERP for mid-to-large-sized businesses comes with a Planning and Budgeting tool designed to help companies prepare budgets and forecast spending.
While this solution has traditional top-down and bottom-up budget planning options, it also comes with agile tools that can fast-track your finance team towards modern budgeting. Plus, NetSuite’s Planning and Budgeting Premium Edition comes with financial models customized for specific industries, like software, services, and agencies.
4. Sage Intacct
The tool facilitates modern budgeting by letting you create multiple scenarios for each budget. Team members can even edit the same budget at the same time. Unlike spreadsheets, which are often shared via email and can easily fall into the wrong hands, Sage Intacct’s budgets can only be seen by collaborators who have been granted access to them.
Prophix is a financial tool focused on improving budgeting efficiency. It integrates and automates planning, budgeting, and forecasting to help companies of all sizes and in all industries modernize their budgets and take control of their finances.
Automation features like workflows help speed up budget planning while mitigating the human error that’s inevitable when you use spreadsheets. Plus, when all of your budgeting and financial planning data lives on one platform, you reduce the risk of accidentally exposing that data to someone who isn’t supposed to have access to it.
Old-school budgeting methods are holding you back – embrace modern budgeting techniques for a brighter future
Spreadsheets, static budgets, and a failure to prepare for worst-case scenarios are hallmarks of the traditional budgeting process. Are these methods doing your company any favors? We argue no. They’re slowing you down, making you vulnerable to data breaches, and preventing you from being able to pivot when things don’t go as planned.
The better alternative to these outdated budgeting tools and methods is modern budgeting: a process that embraces the unknown, technology, collaboration, and automation to help companies thrive no matter what comes their way. Software solutions like Lola.com can help you modernize your financial planning process, and save you a lot of time along the way.