Empower Your Organizational Budgeting With These 9 Actions

Why Create a Yearly Budget?

An organization’s budget serves several purposes. One of the most important purposes is to be a guiding light to the entire organization. The budget is referenced with each big decision made. It is the company’s mission and values written in dollars and cents. It is a group effort to create. Every stakeholder, manager, department head, and team should collaborate on its construction. Tyler Mann, a financial advisor from Oppenheimer, says, “A successful budget provides a roadmap to the success of a growing and efficient business.”

Where a business puts its money shows where its values lie. If at the end of the year, the budget was successfully executed, there is cause for celebration. If the projections or expenditures were way over the reality, then adjustments have to be made in the next year. 

Working from a well-constructed budget has another benefit. It cuts down or eliminates thoughtless spending. Department leads and managers will be forced to carefully consider all choices when spending during the year with an active budget in place.

The budget serves to keep all team members focused in a unified way. Just like a company mission statement ties all the stakeholders together with one vision, a budget guides everyone along one path. It becomes an exercise in teamwork to make a budget work. If everyone has a say in the goals and specifics of the budget, they will be more invested in its success.

Here Are 9 Ways to Ensure a Solid Company Budget

#1 Use Assertive Communication

Managers need to use assertive communication when presenting budgeting needs to decision-makers in an organization. When it comes time to present the proposed budget, managers need to present it in a confident and knowledgeable manner. Showing confidence in the budgetary findings allows the department or organization members to feel certain about it.

Communication is vital to budget creation since there are most likely many moving parts that must come together to form a cohesive, company-wide budget. You must know yourself to lead yourself.

Take our quiz, The Five Voices Assessment, to determine your communication style. Knowing your communication style is key to communicating effectively with your employees. Relaying your message in a way that is most likely to be received is imperative to leading a successful team. The results will be visible upon completion of the quiz and emailed to your inbox.

#2 Focus on Your Company’s Values

The yearly budget is not a place to forget the importance of keeping employees happy and engaged. Remember to place a high value on line items that will keep employee retention high. If your company culture includes elements of ‘giving back’ throughout the year, be sure to include funds that will meet that goal. Maybe your organization provides volunteer days for its employees. The budget will need to reflect any needs to make that happen.

#3 Don’t Go it Alone

In the initial stages of budget creation, involve high-level company leaders to ensure that the budget reflects company-wide goals. Involving all levels of players in the company will guarantee that everyone is heard and that the financial budget reflects the needs and anticipated expenditures of each department. The sales team should be on board. Lower-level management should be on board. Including all the stakeholders is a great way to lift employee engagement and satisfaction.

Also, incorporating all the players in the creation of a budget sends the message that the employees are valued for their engagement. Really listening to what you are hearing from every department means more satisfaction with the end result. And really listening requires being present. Successful leaders know to value presence over productivity.

#4 Research Costs

The bulk of the research needed to formulate next year’s budget will be costs. We know how tumultuous the supply chain has been over the past few years and the many ways that the cost of running a business has been affected. The budget should reflect the current and projected situation of the wider market that your organization is part of. 

One thing to note: Harvard Business Review says that managers creating budgets should look at the company’s historical budget data as only one point of reference, but not the starting point for the budget. Economic conditions are rapidly changing. History is history. 

Harvard Business Review writes, “Inflation, geopolitical tensions, energy shortages, labor shortages, employees’ evolving expectations, rising interest rates, increasing cyber and data risks, insatiable investor expectations — the list goes on.” These are all realities we are living in today that should be taken into account during budget formation for 2023. 

Although, doing a side-by-side assessment of last year’s budget with the actual numbers is a valuable exercise. By doing this direct comparison, managers will learn what areas of the organization need to be more closely researched before deciding on the new year’s budget. This assessment will help inform what areas of the budget need more careful consideration going forward. 

#5 Consider Wage Increases

The month of January is often a time for performance reviews. To increase employee satisfaction and retention, a company needs to seriously consider giving out wage increases to deserving employees. The yearly budget needs to project for that expense. With inflation the highest it’s been in four decades, leaders can’t ignore it. 

Happy, well-compensated employees will stick around for the long term. Make sure your budget allows for salary increases.

#6 Plan For Growth, But Be Conservative

Growth is always the goal. So it must be planned for. A safe projection for revenue totals would be 5% to 10%. Don’t get swept away by the optimism that comes from the new year. If you come out ahead of that projection, great. 

And if you fall short, it won’t be as bad as if you had way over projected. Do enough research so that you can make a safe projection without ending up with a loss at the end of the year. 

#7 Plan For Unexpected Expenses 

Budgeting is really your company’s operating strategy for the fiscal year. It’s a plan. Written down. For every department in the company to follow. It’s planning for the best-case scenario. But, unexpected expenses come up. How will you handle that as the leader? 

Having a worst-case scenario budget is thoughtful planning. Actually constructing two budgets is one strategy to ensure that there are no real surprises. 

Another strategy is to have plenty of funds set aside for the unforeseen. A prepared leader knows to plan for unplanned situations. As much as possible, allocate resources to cover those unplanned situations. 

 Showing flexibility is one of the qualities of a good leader. Having emergency funds or resources set aside for the unexpected shows flexibility.

#8 Sharpen Your Leadership and Financial Skills

Including financial skills in leadership training will pay dividends for your organization. Make sure that the leaders responsible for budgeting in your organization are adequately trained to take on that essential task. Training for managers and supervisors should include budgeting and finance. 

If you are the leader tasked with budgeting, don’t be afraid to speak out about needing to attain ongoing education in the area of finance. Budgeting is one of the most important financial skills needed by a manager. The budget sets the pathway for the year and if done inadequately, can ruin a company.

Along with having adequate financial training, leaders charged with budget formation should be strong, competent, and respected leaders before this task is even undertaken. Leaders equally give and show respect. They are open to advanced training which looks inward before looking outward. CarbonCo’s Altitude Course provides leaders with self-paced, next-level training to become the leader who leads others to success. At the core of the Altitude Course is the notion that leaders can have impact through influence.

#9 Budget Early 

It’s never too early to start thinking about your organization’s upcoming budgetary plan. Why put off such a pivotal piece of the company puzzle? Take time to do your research. Visit with all key stakeholders. Analyze past performance relative to past budgets. Be in tune with the current market trends. 

Become comfortable with the goals of each department within the organization and what their needs will be in the coming year. Communicate openly and frequently with those tasking you to draft the budget. Make budget analysis a continuous endeavor.

You need to decide on a recurring process for evaluating the budget. Will you revisit it quarterly? Monthly? With this careful attention, you are less likely to get into a position that will cause big waves. You’ll be able to course-correct in time and update department heads on the actions needed.

In Closing

Budgeting is, of course, essential to all businesses. But not every leader comes equipped with the knowledge and skills to budget competently. Corporate leaders have the responsibility to make sure the people charged with leading the budget process are trained in finance and budgeting. Surveying every area of the organization, determining short and long-term goals, looking at historical data as one reference point, using assertive communication, including all decision-makers, and planning for growth are all vital aspects of allocating financial resources year to year. It takes financial expertise and teamwork to make the budget work. And if the budget works, the business works.