Failing to carry out good Budgeting Strategies for budget management negatively affects the company’s growth, as it will not be able to maintain its financial health in the long term. On the other hand, managers who delve into the subject will be able to better assess their investments, control their expenses, reduce costs and develop even in the face of unpredictable situations or financial crises.
To take advantage of these Budgeting Strategies, good budget planning is crucial. Given the importance of the subject, we bring you this publication, which lists the 6 most efficient Budgeting Strategies for good budget management. Read on!
1. Organize and Track Bills
The first Budgeting Strategies is to organize and closely monitor all company entrances and exits. To be successful in this task, we recommend taking steps such as:
- Create a quarterly, semiannual or annual financial plan;
- Record the organization’s exits and entries, including small value movements, as they can generate significant losses in the long term;
- Control the cash flow to meet the demand for working capital (money needed for the organization to maintain its activities);
- Prevent business accounts and personal expenses from getting mixed up. Set a fixed income for managers and make
- Strict control of expenses;
- Analyze the costs and returns of investments made.
With these procedures, the company minimizes the occurrence of fraud, uncontrolled accounts, unnecessary expenses, lack of working capital, and even legal problems.
When it comes to organizing accounts, many people believe that it is necessary to create an extensive spreadsheet of income and costs; however, it is currently possible to delegate this activity to management systems, which automatically collect, analyze and organize information.
2. Work with Budgets
Don’t confuse Budgeting Strategies with a business budget. While the first concept is broader and encompasses different strategies to improve financial control, the business budget shows the company’s expenses and revenues in a certain period of time — usually a year.
The purpose of these Budgeting Strategies is to help managers better define where business resources will be invested. There is not only one way to prepare this document, but some steps are essential to do so. Look:
- Carry out a complete diagnosis of finances: this includes verifying tax expenditures, average profit achieved, average sales, possible extraordinary expenses, among others;
- Establish objectives and goals: define the general objectives to be achieved by the business, as well as the individual goals of the employees;
- Consider All Accounts: Write down all the factors that might influence the budget, even if they are low in value. Examples of accounts are loans, interest paid or received, investment income and production costs;
- List all fixed and variable costs: the first are those that do not change each month, while the second vary according to production;
- Budget by cost center: separate the inputs and outputs for each department. Thus, it is possible to know which ones generate more costs for the business.
3. Make Scenario Projections
Designing or analyzing scenarios is the act of preparing for different situations that may occur. Performing these simulations is important to avoid the business being harmed by unforeseen events and external events, such as reduced demand and financial crises. At least three types of scenarios should be designed:
- Optimistic: events are favorable to the company, it will be able to achieve its goals and revenue targets, keep costs low, etc.;
- Pessimistic: the opposite of the previous one occurs, that is, it predicts the worst situations of costs, expenses, earnings and other aspects;
- Realistic: this is the closest projection to reality. It is noteworthy that it is not a compromise between the two previous ones, as it only brings the most likely situations.
Even if the results are better than expected, it is essential that the company has a plan for the optimistic scenario. Without it, managers will not know what to do with the earnings and will run the risk of allocating them to disadvantageous investments.
4. Automate Budget Management
There are systems specially developed to automate various financial management activities. This technology, among other advantages, reduces administrative expenses (personnel expenses), minimizes the occurrence of errors, makes revenues and expenses more predictable, and increases the company’s security (preventing confidential information from being leaked).
It is important not to confuse a management platform with Excel spreadsheets, as the latter is limited and does not allow for complex functionalities to be developed. Understand some of the main activities that can be performed by a financial management system:
- Performs reconciliation with bank accounts, allowing sending or returning invoices and payments to suppliers;
- Makes it possible to integrate with other platforms — that is, it can be easily coupled to your business management system;
- Allows you to control the entire cash flow in a few clicks;
- Collects data from the sectors and the company in general to create management reports, which improves managers’ decision making;
- develops graphics, applies performance indicators and enables real-time monitoring of movements.
5. Watch Out for Cash Flow
Cash flow consists of the inflows and outflows of capital from the business, and it is essential to record in detail all these movements, including amounts, dates, and times.
As a company makes many payments and receipts on a daily basis, traditional spreadsheets will not be able to ensure this control. To solve this problem and avoid cash flow errors, you can use a management system that automates records.
This concern also allows the company to carry out the cash flow projection, which consists of anticipating how much money the company will have available at a future date, which allows managers to know whether or not they will be able to meet their commitments.
6. Track the Results
The most important Budgeting Strategies are to Monitor the progress of results to see if business objectives will be achieved. This can be done through key performance indicators (KPIs), which are indexes applied to processes and results to assess costs, gains, efficiency, return on investments, and more. You can check out our article that lists the top financial KPIs and how to calculate them.
Budgeting Strategies for Budget management requires a lot of technique, organization, and concentration from employees, however, it is crucial to keep the accounts balanced. But it is possible to facilitate this activity, increase security and reduce costs simultaneously with specialized technologies.