Your Budget Management Process is Broken

Your Budget Management Process is Broken

The budget management process is simple, in theory.

It starts with the financial planning process. Your finance team reconciles bottom-up plans from across the organization, with a top-down plan from senior management. This financial plan is translated into annual budgets and achievable revenue goals. These budgets and goals are passed back to senior management, who invest and spend their budget allocation to hit goals. Everyone shares information and communicates on a monthly basis. It's perfect.

This perfect budget process breaks down for a very simple reason.

The vicious budget management cycle

How can you hit a budget you don’t have? 

At most companies, budget owners have to wait for finance to complete their monthly forecasting and close process before getting updated budgets. Sometimes this takes a few days. But most months, your small finance team has competing priorities. Audits, the annual planning process, restated financial statements, and inevitable replans always come up. The end result - updated budget-to-actuals get punted out a few weeks.

Without a clear answer on how much money they can spend, most of your budget owners try to keep track of their operating budgets in Excel. But for a variety of reasons, their actual results are a little different from their best guess.

The end result - your budget owners are off budget every fiscal year.

You can’t solve this problem on your own

The root causes of this breakdown in the budget process are: limited resources, competing priorities, and incomplete information.

Finance headcount is always the last to increase in a growing business. But as the business grows, so do competing priorities. Your team always has to deal with something during the month-end close. While you don’t know what is going to pop up, it is inevitable that department budget reporting gets delayed. Your budget owners have no choice but to try to track spend on their own. But without access to prepaid schedules, accrual entries, and re-forecasted revenue numbers, there is no way they can actually keep track of their budgets.

One way to address these challenges is with brute force - more headcount, or more hours. But increasing overhead defeats the purpose - it wipes out the savings you get from staying on budget.

The best option is to invest in better systems and software that automate and simplify the budgeting process. Unfortunately, none of the software on the market today directly addresses your needs. Most budget management tools worth focus on budget and scenario planning. 

But your problem isn’t that your plan was wrong. 

The problem is that your plan was slow.

You need real-time visibility into spend

Let’s reimagine the budgeting process with a simple intervention - give everyone real-time visibility into budgets and spend.

This change allows you to make some subtle, but impactful changes to your budgeting process:

  1. You can quickly distribute preliminary budgets on Day 1, even if it is just guidance
  2. You can adjust budgets again after re-forecasting

With this intervention, you can share budgets and track spend independently from your month end close. Your budget owners have the information they need for decision making. Your team has the time they need to run an effective month-end close.

Lola.com is the only solution that tackles this problem. We combine our budget management software with corporate cards to break this vicious cycle. Learn more about our budgets here.


About the Author: Sagar Velagala
Sagar is the Director of Growth at Lola.com. He has a deep appreciation for analytics, finance, and operations after coming up as an analyst at The Boston Beer Company, HubSpot, and Lola.com. He also has a thing for chocolate chip cookies.