“At all times, it’s worthwhile to sit down and contemplate the future” – this is how we see it at CFO firm Finaly. Of course, meetings shouldn’t be held just for the sake of it. Company budgeting is a desired direction that is turned into actionable tasks that are managed. The company’s budget is a numerical view of the desired financial outcome, and this should be harnessed to benefit everyone in the organization. Budgeting is a crucial part of managing a company’s finances, and when done correctly, it brings many benefits to small and medium-sized enterprises (SMEs). When creating a budget, it’s also worthwhile to grasp the company’s key metrics, which you can familiarize yourself with in an earlier article we wrote.
The budget is part of the company’s financial management and planning, and it should include at least information about where the money comes from, where it goes, and how much. The budget is prepared for a desired period, usually the fiscal year or the calendar year.
We discussed budgeting for SMEs within our team and together listed the key benefits in this article:
- Vision and Direction Setting:
- Budgeting helps the company define its long and short-term goals and concretize how to achieve them. Budgeting encourages the company to think ahead and be proactive rather than just reacting to changes in the market.
- Decision Support:
- The budget provides a clear numerical framework for making decisions, such as investments, hiring, or other strategic choices. This increases freedom of choice and guides everyone to act more independently (self-leadership). Budgeting can also help identify potential risks and plan their management. Additionally, it can assist the company in negotiating financing with investors or lenders by giving them an understanding of the company’s financial situation and future prospects.
- Resource Allocation and Monitoring:
- Budgeting helps understand where the company’s resources should be directed to achieve the best possible outcome. Through the budget, company management can monitor and compare actual results to budgeted results and make necessary adjustments in time.
- Measurement and Motivation:
- The goals set in the budget serve as metrics for the company’s performance and thus motivate employees to achieve them. When the entire organization participates in the budgeting process, employee engagement with the company’s goals increases. Team and individual responsibility for monitoring and managing certain budget items increase commitment and accountability, and thus the meaningfulness of work. It’s a good idea to consider incentives related to team budget goals/exceptional work in budget management.
- Prioritization:
- Budgeting is also an opportunity to prioritize different activities and projects, such as investments or hiring.
Keep the Staff Informed About the Budget
During budgeting, continuous and open communication is key. Keep the staff informed about the various stages and decisions of the budgeting process. Participatory budgeting not only increases employee understanding and commitment but can also improve the quality of the budget by providing diverse perspectives and expertise from across the organization. If you need help with budgeting and involving the staff in the process, check out our earlier article on the benefits of CFO as a service
Company Budget Ready – What Comes Next?
Once the budget is ready, the organization should hold regular review points to assess budget performance and evaluate root causes. This gives employees the opportunity to see how their suggestions and work affect the company’s financial situation. Involving the entire staff in budgeting fosters commitment and increases trust within the company. Similarly, it enhances understanding of the company’s financial goals and strategy.
Budgeting is an Effective Tool
In summary, budgeting is an effective tool that helps SMEs see more clearly into the future, manage risks, allocate resources efficiently, and achieve their goals. When the budget year ends, ask for feedback from the staff on the budgeting process and make necessary improvements for the next time. If you need assistance with budgeting, call Finaly’s Anne at +358 (0)45 7834 1580 or book a free consultation on the topic.
