Small businesses tend to run full steam ahead with projects and advancements. Growing revenue, bringing on employees, and seeing hard work pay off are all standards for young and successful companies. But when budgeting season comes, many are left with unrealistic goals, time constraints, and future challenges that they are forced to think about.
Not only is budgeting overwhelming for growing companies with limited resources, but it can also bring out many of the flaws and realities that companies didn’t want to face beforehand. Here are 5 of the most common mistakes made by SMBs during fiscal planning and simple tips to help them succeed:
1) Time
Every budget has a deadline and no matter how big the team is or what type of budgeting system was chosen, time is always an issue. Deadlines arrive faster than anticipated, and on-the-go changes from the company always cause more work than anticipated. When multiple budgeting contributors are involved, a lot of time ends up being spent on coordinating and compiling, which comes at the expense of actual budgeting time.
Planning ahead is the number one solution to the question of time, but even with all of the necessary preparations, there will always be more surprises and limited work time. Other than hiring the right people and providing leadership and direction, finding the most efficient solutions that fit the company’s needs is the best way to free up more time for analysis. Whether it be outsourcing aspects of the finance team, adopting new technologies, or hiring additional help, there is always a way to create a more efficient budgeting process and free up precious time.
Solution:
Spendesk. One of the best time management solutions out there built specifically for finance teams. The platform enables teams to take control of all spending such as company cards, expense reimbursements, invoice management, automated accounting, and most importantly, control over time management.
2) Not Focusing on Data
Smaller and newer companies tend to make this mistake much more than established businesses- but it can happen to anyone. It usually occurs when finance teams focus on hard numbers and known expenses they have for the coming year instead of the complete budget. Not only is it an incomplete picture that doesn’t tell the whole story, but it also focuses on the numbers that have the biggest chance of changing and making the budget and forecast inaccurate.
When it comes to new businesses, using similar companies’ budgeting models and advice, in addition to reviewing last year’s numbers (plus adjustments), will put the organization in the best position to create an accurate yearly forecast. But monthly adjustments are almost always necessary, and adopting a strategy such as rolling forecasts might be the perfect match for young and growing businesses.
3) Ignoring Automation Solutions
SMBs have many legitimate excuses as to why they don’t update their budgeting solutions: It is out of the budget for a small company, the finance team is too small or works part time, they are unaware of the benefits, or no time to implement it, are all reasons why SMBs tend to stick with outdated and inefficient budgeting systems.
Although many of these reasons are legitimate- solutions do cost money and it takes time to implement it- the cost of using outdated and inefficient systems will overtake everything else very quickly. There are a wide variety of FP&A solutions available for everything from small companies to MNCs, and the automation and clearer forecasting will save a huge amount of time and money.
Top SMB FP&A Solution:
DataRails. The native Excel interface platform is one of the best solutions for SMBs of all kinds. Without having to leave Excel, companies can implement it very fast and the multitude of integrations allows finance teams to make the most informed decisions for company growth.
Top Large Organization FP&A Solution:
Vena. A complete planning platform with a native Excel interface and above average workflows. With great budgeting and forecasting tools and many integrations, Vena is a great solution for large businesses with an established finance team.
4) Unrealistic Budgets
When finance teams aren’t fully connected to everything in the company, this can produce budgets that are unrealistic and not properly fit for each department. Unlike the other common blunders, this scenario is more likely to occur in medium and large companies, or those with a new or inexperienced finance team. Each department has its own needs and goals which will constantly change throughout the year and if budgets don’t reflect that flexibility and evolving needs, the budget will turn out to be extremely off the mark, and harm the company’s finances in the process.
Fixing this is easier said than done. It requires committed finance employees who are invested in understanding the ins and outs of the company. It involves a high level of communication and collaboration between finance and the heads of departments in order to understand their needs and goals, all while keeping up with the heavy work load already on their shoulders. Although it's not easy, those companies who have the right finance team led by the right CFO will see tremendous payoffs in terms of accurate budgets and a high level of collaboration.
5) Value
Value comes down to efficiency as well, but from the opposite side. Overspending on multiple finance solutions is not only a waste of money, but can also overcomplicate the finance teams’ job performance. The last thing a small company needs is a budget that is too complex for their own good.
Finding the perfect medium is a difficult task but it's imperative for the optimal level of value and efficiency. One option is having a more accessible budgeting plan, where department heads have more of a say, or a streamlined process that is easily accessible.
6) Overpowering Biases
For young companies with small or new finance teams, it is very hard not to let biases influence financial data. One-person teams always have an agenda, whether it be wanting to please the CEO or just human mistakes and influences that are easier to miss if nobody else audits it. Budgeting is not a fun task at first, as spelling out all of the costs can be a real momentum stopper to the full-steam-ahead mentality of young companies.
There are 2 ways to solve this issue. For young companies setting out on their budgeting journey, doing a form of zero-based budgeting is a great solution as it sets the parameters and justification for each salary and cost and is a great starting point. For more established SMBs, having more people involved in the budgeting process is essential as this eliminates the one-person bias and establishes a broader and more concrete plan when presenting it to the executives.
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