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In general, companies have limited resources and need to prioritize and optimize how they invest those resources over time to reach milestones, evolve and grow. A well run budget process helps management teams work together to sets clear goals and expectations around revenue and cost results (among other things) over time. This process also helps tee up management discussions and decisions on strategic choices and tradeoffs.

But having a budget in place is not very valuable if you don’t regularly check progress against the budget (in all areas not just costs). I am a big believer in investing in an efficient monthly close process – my typical target is 5 business days for a private company – and then in getting a detailed monthly reporting package out to the management team and other key budget owners in another 1 to maybe 2 business days.

The basic building blocks of a robust but simple reporting package are a series of variance analyses that show actual results versus budget for key financial and operational metrics on a month to date, quarter to date and year to date basis. If a monthly reporting package is good, it can help managers/leaders:

Understand key business drivers and how they impact the business generally (e.g., if I hire more sales reps, it will increase costs by $X, Revenue by $Y and the net results to cash flow will be $Z.
Understand results, variances, trends and importantly how these things impact the future financial results or expectations of the business (e.g., if you spend more than plan and you are not yet cash flow positive, it is very important to understand how changes in performance will impact when you run out of cash).
Revisit strategic decisions as they learn more about their business and related assumptions each month.
Hold managers and budget owners accountable, an extreme example is paying for performance (e.g., paying out commissions based upon hitting revenue or regional profitability targets).

Post Author: admin