Budgets used to be a bit like being on a train. The train would go from point A to point B, and there was no need to deviate from the path laid out by the tracks. As long as you followed their path, you’d get where you were going. Getting off of the track wasn’t an option.
Today, that no longer works. Business moves at a much faster pace, and opportunities can appear and be gone in the blink of an eye. You can follow the train tracks to the destination you were heading to, but by the time you get there, the world around you has completely changed.
This means that organizations – and their financial plans – must be more flexible than ever before. But a plan is still important. So how does an enterprise become agile with finances while still having a plan in place to meet its strategic plans? Enter agile planning for finance.
Ready for Change
An annual budget can give you the confidence and structure you need to keep your company moving in the right direction. But it can also stifle creativity. It’s easy for an approved budget to cause tunnel vision.
No matter what has been laid out in your financial plan, it’s important to keep your eyes open and an ear to the ground for what may be important. Your R&D department may create a new, hugely in-demand product, a technology may be unveiled that would save your manufacturing plants hundreds of thousands of dollars, or a competitor may suddenly be open to acquisition discussions. Sticking to your annual plan will keep you from taking advantage of a situation that would put you head and shoulders ahead of your competition or create an indisputably superior customer experience.
Approach with Caution
Even if a great opportunity presents itself, and it’s one that you’re willing to work around your financial plan for, it is important to ensure that due diligence is still performed.
Completely evaluate what the opportunity could mean for the company – is the potential gain worth the risk of going off plan? What are the budget impacts if the ROI won’t be immediate? And does this new opportunity meet the company’s strategic goals?
These situations are custom made for what-if scenario planning. Using best, worst, and expected outcomes, alter your existing budget to accommodate the new opportunity. What-if planning will uncover the near- and long-term value of the investment, and what changes will need to be made to meet the new budgetary demand.
Reconsider How You Budget
If you’re concerned that an annual budget won’t be flexible enough to allow for change and innovation, consider changing the way you budget altogether.
Moving your organization to rolling forecasts may build the flexibility into the company’s financials that is needed to move forward on unexpected opportunities. A rolling forecast will allow you to evaluate your plan on a more frequent basis. This may remove the blinders from your organization, and give leaders the freedom to take measured risks that could lead to previously unforeseen possibilities.
Small to mid-market organizations rely on Centage Corporation’s Maestro Suite, which includes Budget Maestro™ to help them keep track of and manage their cash flow. Budget Maestro improves the efficiency and effectiveness of business budgeting and planning, financial forecasting, financial consolidation, and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.