"My managers are good at putting together an annual budget but dreadful at projecting monthly budgets. They just want to divide the annual budget by 12! Any suggestions?"
This question was asked at a recent webinar, now available on-demand:
Please add your thoughts about it below. Thanks!
Sounds like they think the budget is for you, not for them. First, make sure they have been provided with the prior year history of their spending so they can begin to judge the timing of expenses. Then give them guidance in the right way to prepare a budget, such as the tips in my program, make it clear that they must be accountable for the monthly results in addition to the annual results, and of course mean it. The culture will not change overnight, but if there’s no compelling reason for them to change, it’s easiest not to change.
I would also add that the effort of establishing a monthly budget will be well worth it when you start analyzing your actual monthly results vs. your budget. As Gene Siciliano mentioned you will need to use historical data in order to better understand how budget items are spread over the year, and it’s important to also monitor year-to-date results vs. your YTD budget.
And ultimately, budgeting your balance sheet accounts (with the right software solution this can be automatically derived from the revenue and expense budget, capital expenditure and debt budget, and providing account beginning balances) will allow you to forecast your company’s future financial health and analyze the actual results (actual balance sheet) against the forecasted one.
The divide by 12 may work for service contracts but is very little help when it comes to the execution of projects and the accounts affected by projects. I would say taking ownership is the fist step and perhaps tying this to their annual performance review may help them to better stay on track. The other thing as already mentioned would be educating them and working with them to understand the importance of the budgeting and allocation process. Make them feel a part of the process along the way for better or for worse. It is a
