More Accurate Budgeting:
A Prophix Guide
There's a lot that goes into creating a stellar company budget — consulting with colleagues, analyzing historical data, estimating future performance, and months and months of valuable time. For many organizations, budgeting remains a time-consuming, manual process. What's worse, basic budgeting can fail to surface opportunities for growth and innovation. But it doesn't have to be this way.
A smarter budget process is automated, collaborative, and analytical. It's as much about detailed analysis and intuitive projection as it is expenses and revenue. This guide will help you upgrade your budget process to better serve the interests of the whole organization.
What's the Difference?
What is budgeting?
Budgeting is a process that business leaders use to outline what a company wants to achieve fiscally for an upcoming period. Through the budgeting process, management estimates revenues and expenses and expected cash flow, to create a detailed representation of how they will achieve their desired financial position.
Budgeting is often a once-a-year ordeal that can take up to three months. Budgets provide a fixed picture that actual company performance is compared against. Management uses the variations between projected and actual performance to identify business realignment opportunities and changes in compensation.
What is forecasting?
Forecasting is a technique that uses historical data to estimate the actual future performance of a company, usually in a summarized format. Forecasts are updated quarterly or even monthly and are typically related to revenue and expenses but may also be used for business operations such as staffing, inventory, and production planning.
While historical performance informs forecasting, businesses don't do variance analysis between the forecast to actual results. Achieving a forecast is not a factor in performance-based compensation paid to employees.
Why do companies use both budgets and forecasts?
There's a little dream baked into every budget. While a budget outlines what management aspires to over a period of time, a forecast is a realistic snapshot that captures the organization's current trajectory.
A budget is a useful tool in establishing business plans and determining resource allocation but is usually too dated to have much day-to-day impact. Instead, it often becomes a guideline of how much to spend and by when. Most budgets are static and don't reflect market changes that occur during the year. Competitive threats or an economic downturn can nullify budget assumptions within a year — sometimes within a matter of months.
But if the budget were adjusted throughout the year, based on company circumstances — such as competitive threats or an economic downturn — it could be a more practical guide to the business's direction.
Continuous Budgeting: What and Why
Continuous budgeting means adding a new month to the end of a budget for every month that elapses. Continuous budgeting is advantageous because management continually evaluates the budget model and revises assumptions for each incremental month. If a company managed a continuous budget that went out 12 months, they would not need to undertake the arduous process of developing a whole new budget for each fiscal year.
With a continuous budget, employees can keep an eye on short-term and long-term business plans and allocations and adjust behaviors accordingly. For example, if department heads know they had allocated funds in the new fiscal year, it may reduce the flurry of spending that's typical toward year-end as people try to use up their budget.
Of course, constant rebudgeting can be a significant drain on human resources — especially if the budgeting process includes many employees. The good news is that automated budgeting can improve interdepartmental collaboration and data quality — all while mitigating company risks.
Steps to Better Business Budgeting
How many spreadsheets and technology platforms do you refer to when building your budgets? For most companies, it’s a lot.
01. Create a single source of truth
CRM Customer data, sales opportunities, and marketing campaign performance are locked up in your CRM. There are dozens of reports you could run. But wouldn't it be nice if there was a way to consolidate this information for the budgeting process?
ERP An ERP may be your source of truth for Finance, manufacturing, inventory and order data, but if it's not integrated with other business systems, uncovering actionable insights can be a painful, virtually impossible process.
Payroll Employee salaries are one of the largest expenses for the organization. But too often, personnel planning is not tied in with other business systems. Imagine if it was easier to determine how personnel changes affect the business' finances and resource allocation.
How Prophix Helps
With integrated data and a streamlined process, budgeting can be simpler and more accurate. Our integrated budgeting software makes a single source of truth possible. All relevant metrics are consolidated within a single budgeting platform, reducing duplication and the possibility for errors. And because updates to the system automatically populate throughout, you'll always have the current information at your fingertips. Find out more.
“Finance departments should have a data repository that contains reliably accurate and up-to-date data. This repository should be able to handle financial and nonfinancial data because departments need both types to analyze and report on their company’s performance. And, to ensure that data is accurate and up-to-date, it should avoid storing data in individual spreadsheets.”
02. Collaborate with stakeholders
While collaborative or participative budgeting ensures the upward transfer of knowledge and employee engagement, the process can be convoluted and complex for everyone involved. It’s hard to keep track of questions and feedback received through email, various business systems, and meetings.
Bottlenecks in the review process
The more people you involve in any process, the longer it takes — especially when one party is waiting on the other for feedback. If these negotiations are happening in person, it can take numerous meetings to come to a consensus.
How Prophix Helps
Promote departmental alignment and collaboration with a budgeting solution designed for cohesive planning across your organization. You can communicate directly from within the platform while using organizational and project management tools to streamline the process.
All employees can enter data and view feedback when, where and how they want, making it easier to achieve consensus. And because input is in one central location, tracking approvals is no longer a herculean task. Find out more.
“It is very helpful to have possible Excel templates for people who refuse change and are not into learning new software. [With Prophix], data is housed efficiently and it’s easy to do ad hoc analysis. Prophix is very easy to use and it has a nice interface.”
03. Automate with intelligence
Creating a solid budget takes time, but when market shifts necessitate changes to the budget, time is a luxury that business leaders don’t always have.
Business forecasts are guiding tools for your business, but they are so hard to get right. Data-driven predictions can help you develop accurate rolling forecasts with greater ease and reduce risks inherent to working in spreadsheets, such as incorrect formulas or missed values.
Predicting staffing requirements
You need the right workforce to execute on business growth plans, but developing and finessing personnel plans is often tedious and time-consuming. Budgeting automation makes it easier to determine the staff you need to support business needs.
How Prophix Helps
The Prophix solution uses intelligent automation and workflows to streamline menial aspects of the process, including the submission and review processes. Since people spend less time entering data, more time is available for analysis and other high-value activities that are rewarding rather than routine. Find out more.
“Using Prophix's software to automate the creation of our annual budget has been a real game-changer - and we have improved our forecasting, too. We also generate reports on-demand that compare actuals, budgets, projections, previous year data, and variances.”
04. Gain In-Depth Insights
Data analytics on your single source of truth
Intelligent automation makes it easier to see the combined truth of your financial and non-financial data.
Spot opportunities in past performance
Spend less time attempting to discern the reasons for company successes and failures. With easy access to information, you'll know when you should repeat the past or try to avoid it.
Correlate data to spark innovation
With a centrally located data set, stakeholders across the organization have access to the same comprehensive information, leading to better collaboration and innovation.
How Prophix Helps
With just a few clicks on your self-service interactive dashboard, you can leverage the powerful insights that come from having a single source of truth. Customize your dashboard to display only the metrics that matter in the most meaningful way.
And, you don't need to settle for just one dashboard. You can create multiple views to make it easy to share information with various stakeholder groups. Find out more.