By: Kevin Phillips
“A budget is one of the most important decision-making tools in any business, providing guidelines that steer the future of your enterprise,” says Kevin Phillips, MD of idu Software. “It goes without saying that if your budget is slowing down your business, it may be time to invest in specialist tools to make things faster and easier. If any of these apply to you…”
1. The budget takes three to six months to complete
A budget is supposed to be a business roadmap, not the actual journey. If it’s taking more than six weeks from start to finish, you are wasting precious time that could be far better spent on meeting actual sales and production targets. Even worse, the longer the process drags out the more everyone hates it and tries to avoid it. Some of us have been doing the never-ending budget process so long we’ve forgotten it doesn’t have to be like that. There ARE quicker ways to do it.
2. Your accountants are spending most of their time editing spreadsheets
You’re paying a CA a top salary to provide strategic insight and direction, not fiddle with formulas. Yet if your business is still doing it’s budgeting with spreadsheets; that is exactly what they’re doing. They send out the budget template, everyone fills in their numbers and of course a few smart people decide to “improve” the spreadsheet and break a key macro in the process. Your accounts department spends hours fixing the problem, and more hours trying to collate all the different spreadsheets into one that makes sense for the whole business. But that never happens the first time, of course, so the spreadsheets need to go back out and the whole circus repeats itself. Before you know it, its six months in, and the expensive analysis skills of your CA are rotting from lack of use. The solution: Use software built around a single centralised database, so there are no conflicts and all the information is available to everyone the moment it’s created.
3. Nobody takes responsibility for overspending or missing their targets
The budget merry-go-round usually only stops when the accounts department throws up its hands in despair, makes some brute-force changes so that everything works and then tells everyone “this is how it’s going to be”. The cost centres roll their eyes, mutter about their time being wasted and carry on doing their own thing. Then when your managers come in over budget they say: “Those weren’t the numbers I sent. I TOLD the accounts department they were being unrealistic.”
A budget should be the one of the most important documents guiding your business decisions – but for it to work properly, it must incorporate the knowledge of everyone, not just the central accounts department. If your store manager in Bloemfontein knows there’s a rival opening down the street, or your production manager knows that the prices of two key inputs are about to increase, that information needs to be fed directly into the budget – not lost in memos or discussions.
So, what goes into the budget is critical – but just as important is what comes out. How often do your managers consult their budgets – honestly now: Every day? Once a week? Once a month? Or just once a quarter when the reports are due?
A living budget should be easy for those who aren’t financial experts to create and use. If all the information is in one central store that’s easy to access online, always up to date and easy to use, suddenly your managers should find that keeping track of their budgets is not such a terrible chore after all — and the business will have much more accurate information to work with.
Kevin Phillips is an entrepreneur who has built a successful business, and so has a solid understanding of the challenges and questions business owners face. He has degrees in Commerce and Accounting, and started idu Software with partners James Smith and Wayne Claasen in 1998. For more information visit www.idu.co.za.