While the rest of the world is ensconced in 2023, CFOs are already looking toward next year. Budget season is just around the corner, and being prepared is integral.
Planning 2024 budgets takes forethought and considerable prep work. CFOs drive the success of next year’s budgets with the prep work they do today.
Why It’s Important to Prep for Budget Season
The old adage “if you fail to plan, you plan to fail” is alive and well in the business world. Formulating a goal-driven game plan for getting the most out of your company’s resources maximizes your chance of success.
A solid budget performs all kinds of positive things, from aligning different departments to giving the company a definitive path to establishing crucial processes for data gathering.
All these things take time. That’s why it pays CFOs to take proactive action.
6 Steps to Prep for Budget Season
Budgeting well is a multi-faceted process that shouldn’t be an afterthought. Here are 6 actions CFOs need to take to create valuable, accurate 2024 budgets.
#1 Set Budget Goals
Starting with the end in mind is the best way to stay on track with the main company priorities. Budgets should directly tie into company goals. For example, if a big goal is to increase innovation, the budget probably shouldn’t focus on decreasing spending.
CFOs should collaborate with the company’s department heads and get their input on the budget. The goals should always drive these conversations and keep the resource allocations in line with what the company’s trying to achieve. Every line item should tie back to a main goal.
#2: Outline a Sales Forecast
In addition to company goals, budgets are inevitably tied to sales. Are you gaining new clients and keeping current ones, too? Or, is competition fierce, causing you to struggle with customer acquisition? These answers are important parts in creating a budget that is thorough and realistic.
We’re not saying forecasting sales is easy. It’s not. There may be unforeseen factors, new competitors, material shortages, labor issues, and a host of other elements that impact your company’s sales. However, arriving at an accurate sales forecast isn’t impossible.
- Review historical data. While the past may not dictate the future, it certainly offers a good indicator of future performance.
- Pick a sales forecasting method. Will you use the information in your customer relationship management (CRM) software or another model?
- Include external and internal factors. If the country’s on the brink of a recession, you may want to pull back on your exuberant expectations. On the other hand, if your company has just hired half a dozen high-performing salespeople, add their stellar efforts to the forecast.
#3: Communicate Transparently with Participants
CFOs may be the ones who put the final stamp on the official budget, but there are many other hands in the process. These parties need to be seen and heard during budget season. Other members of the C-suite, department heads, and team leaders should all be tapped to give input into next year’s budget. Otherwise, how could it possibly end up with everything needed to run the company?
Offering every participant clear direction is the best way to keep voices from being lost. Start with the main company goals and shared targets. Succinctly explain what items are needed from each person. Urge them to put significant thought into their ideas and suggestions, and give them plenty of time to work on it. There shouldn’t be any “this is due in a few days” deadlines.
#4: Implement the Best Tools
The good ole spreadsheet was a great tool for budgeting once upon a time, but there are many other, more intuitive, and robust options available today. Smart CFOs will upgrade their current tech stack before budget season.
Helpful financial planning tools help automate tasks, streamline information, create a single source of truth (in the cloud), and test multiple scenarios. In addition, they make collaborating for on-site and remote participants seamless and easy.
Implementing the right tools can be the difference between an almost problem-free budget season, and one that leaves you exhausted and unsure about your finished product.
#5: Create an Organized Data Collection Process
Past data is crucial in determining a viable budget for next year. It tells you things like how much your company spent on its endeavors and what priorities took the most resources. Gathering accurate data from the past puts you miles ahead during budget season.
Unfortunately, collecting it may seem like a nightmare.
If participants didn’t report data, if it was stored in multiple locations, and if there wasn’t a priority put on recording it, your data collection process may be a beast.
Alleviate the headache of data gathering by choosing a cloud-based location to house your past and present budget information. Once it’s set up, train every stakeholder on how to add, edit, and review information they may need to formulate their part of the budget.
Keeping data in a single, transparent location breaks down department walls and gives everyone more information. Plus, it provides a full picture to the CFO during the final budgeting process.
#6: Run Scenarios
Budgets are rarely static tools. By looking at the different situations that could impact it, you can create a more successful, agile plan for your company.
Use intelligence to run what-if scenarios on your proposed budget. These may include:
- Adding and deleting products, company divisions, and salespeople.
- Increasing expenses to plan for resource allocation.
- Forecasting an economic downturn to understand how it would affect sales.
- Looking at the most likely scenarios to create a realistic vision.
Instead of building a budget solely on past performance and data, scenarios help forge a future-ready budget that’s able to withstand unexpected threats and capitalize on sudden or unplanned opportunities.
Trust Centage to Decrease Budget Season Stress
Creating an accurate, flexible, cohesive budget is a group effort. The CFO, however, is the ringmaster who puts it all together. As budget season approaches, these tips are pivotal in ensuring everyone is aligned and ready to share their intelligence. With tools and scenarios at their disposal, budgets can be valuable tools that guide a company’s strategic initiatives and help meet goals.
Use Centage’s Planning Maestro to upgrade your budget-building process. Our cloud budgeting software takes the sting out of gathering data, collaborating with stakeholders, and testing scenarios. Build a more predictive, agile, and accurate budget with Centage.
Centage provides modern FP&A software solutions that empower Finance teams to lead the way to a stronger, more agile business. Our cloud platform, Planning Maestro, makes sophisticated budgeting, planning, and forecasting easy and accessible. Intuitive automation accelerates workflows and improves accuracy, enabling Finance leaders to deliver reliable information and meaningful insights at the speed of today’s business. For more information on how to modernize your FP&A process, view our product demonstration video, or call 800-366-5111.