Business budgeting season is coming into the home stretch. Will your budget for next year be a rock-solid financial roadmap, helping your organization effectively allocate resources and prioritize objectives? Or will a lack of foresight lead to cash flow problems or decisions based on incomplete information?
With a business climate likely to be impacted by geopolitical uncertainty, shifting compliance requirements, a lack of qualified finance talent, still-problematic inflation and cybersecurity threats, here are some best practices from different experts for doing one last double-check of your 2024 business budget before finalizing it:
- Adequate key stakeholder involvement. How much of an effort did you make to get input from your leaders in Sales, Marketing and Operations for the 2024 business budget? This easy to overlook collaboration can help identify, quantify and address potential opportunities or risks throughout the organization. Communication with all stakeholders about any budget adjustments that you make, and subsequent financial performance, will go a long way in fostering trust.
- Analysis of alignment with strategic objectives. It’s important not to lose sight of the need for your business budget targets to be in sync with long-range financial plans and overall strategic objectives that increase your organization’s value. Are expenses tied to specific objectives? Is the projected ROI going to move the needle and deliver customer value?
- Analysis of whether your business budget targets are realistic. Most business leaders anticipate at least some increase in overall spending in the next 12 months, especially when it comes to technology. But your peers will still be cautious, making fewer overall spending increases in their 2024 business budgets, according to the latest Forrester Planning Guides. A lot of it depends on what your stakeholder, shareholder, customer and employee expectations are for growth.
- Training/upskilling budgets that correspond with tech investments. Because tech is one area where companies won’t be cutting back, staffers may need support to overcome resistance to the implementation of new automation technologies, especially if there’s a perception that it’ll threaten their job security. Controllers Council recommends allocating resources toward employee training and upskilling in 2024.
- Have a clear plan for measuring performance. What performance metrics will you be using to evaluate the effectiveness of your budget and identify areas for improvement?
- Have cash reserves. Implementing secondary spending control measures can provide your company with financial flexibility if there are major cash flow disruptions or supply chain challenges. Establish definitions for when and how reserve funds are utilized. As the year progresses, these funds can be released if they weren’t needed in the previous quarter, and allocated toward research and development projects, hiring initiatives or capital expenditures.
Also, did you spend enough time examining past performance, market trends and industry benchmarks to ensure that your targets for next year don’t lead to financial strain? For instance, did you identify:
- what goals were met and missed?
- what resources were underutilized?
- where cost overruns occurred?
- what expenses were overestimated and underestimated?
Evaluate your business budgeting tech
Were you able to utilize software and data analytics tools in your budgeting process to provide valuable insights into financial trends? Better yet, will your tech stack provide your finance team enough access to data in the new year to analyze growth, customer trends, economic indicators, supply risks and market risks?
Your CFO peers are leveraging tech for more frequent, data-driven scenario planning to make their businesses agile and resilient enough to strategically shift when necessary. Today’s AI-driven and cloud-based fintech enables proactive preparation for potential risks and disruptive changes by developing multiple business budget scenarios based on different economic forecasts and market conditions.
This proactive approach, which should be a continuous process conducted throughout the year, can be a big help for identifying unforeseen problems with a business budget, adapting to changing circumstances and making informed investment decisions.
For example, funding of strategic projects may continue to be difficult to secure because of elevated interest rates and borrowing costs. Scenario planning sheds light on the impact of different investment prioritization plans.
Can’t afford to set it and forget it
Going back to the traditional, fixed budgets of the pre-pandemic times is not an option. Regular reviews of your business budget throughout the year will continue to be necessary to track progress towards targets, identify deviations and make necessary adjustments. Staying flexible and adaptable to changing circumstances is the key to maintaining financial control.
Going forward, it may not be the most popular technique because of how time-consuming it is to justify every single expense, but Controllers Council advised considering a zero-based budgeting analysis to determine if you need to shift your spending. Zero-based budgeting is also helpful for realizing how much capital you can relocate in a worst-case scenario.
Most popular tech budget increases
Forrester’s survey respondents said they’d be increasing their tech budgets in:
- AI capabilities (86%)
- Cyberthreat intelligence (79%)
- Business intelligence and analytics tools (79%)
- Data infrastructure and management capabilities (79%)
- Customer analytics capabilities (77%)
- Network security (77%), and
- Client threat management (77%).