Fatihah Ramzi, DigitalCFO Newsroom | 11 April 2022
Finance professionals will be able to rapidly and efficiently adjust future budgets if they focus on a good forecasting strategy and use scalable FP&A software.
Inflation, supply chain disruptions, and other reasons are pushing FP&A executives to be more proactive and nimble in their planning. A rigid, walled, spreadsheet-based model to financial planning, on the other hand, will significantly limit their potential to provide improved foresight and planning agility. Making a yearly budget is similar to playing chess. Every decision must be logical, calculated, and deliberate.
In today’s uncertain environment, accurate planning and forecasting have never been more important for a company. Unfortunately, as we’ve seen with this worldwide pandemic, the only certainty for businesses is that unpredictability will always exist. Companies must be proactive in their strategy development and modify for what-if situations, changes in the market, or even a worldwide crisis so that they are able to easily embrace these ever-changing conditions. So, how can businesses think beyond the box and be ready for anything? By creating a more effective financial budget.
If CFOs and financial leaders throughout the world want to enhance their budget execution, they must change the way companies do business. Finance professionals will be able to rapidly and efficiently adjust future budgets if they focus on a good forecasting strategy and use scalable FP&A software.
Creating A More Agile Budget
Is your CFO armed with all the financial data they will need to produce an annual comprehensive financial report? The CFO must have a clear perspective of the organization’s overall financial reports and indicators in order to establish a robust annual budget. The strategic plan can then be tweaked as needed by top management.
Take a minute to reflect on the previous few years before you begin creating a budget. What was your team’s response to the COVID crisis? Were you able to swiftly adjust your forecasts, or did you lag behind and become disoriented during the most tough months? Your team can recognize where they need to adapt in the future through reflection of the past.
Take Into Account Of Assumptions & Do Stress Tests
How many stress tests and what-if scenarios were part of your budgeting process? If your finance team skips this stage when preparing a financial report, it’s time to rethink your approach. Consider how your company’s performance and growth have been affected during the last two years. Was your accounting department ready? Were you able to keep control of your financial flow, or did it suffer as a result? COVID’s rollercoaster of instability frequently caught FP&A teams completely off guard.
Senior management can adjust their financial estimates as needed by adopting a more aggressive financial planning and analysis methodology. Finance teams will be able to provide more value-driven data for financial budgets and forecasts if they invest in the correct technology and take an active part in strategic planning. To emphasize this point, make sure that senior management from all departments runs stress testing before finalizing a financial report. The entire organization will be able to pivot together as needed by coordinating all teams and enhancing communication across departments.
Consider Zero-Based Budgeting
Zero-based budgeting, according to Investopedia, is a strategy in which all spending is justified for each period. This strategy ensures that every operation that corresponds to a company’s needs and costs is examined. Budgets can then be established on top of this basis, including what is required for the following period. In general, zero-based budgets are more thorough than other budgeting methods. As a result, professionals who employ this strategy can cut expenses and change estimates as needed based on historical performance and present situations.
A zero-based budgeting technique may be the ideal way for businesses to stay on their toes and adapt their budgets. CFOs and finance teams will be obliged to collaborate closely to assess existing spending and reallocate funds as needed. Overall, teams must have a thorough awareness of their financial picture every month if they wish to respond rapidly.
Create a Financial Safety Net
Did your team have a plan in place to deal with 2021’s unanticipated twists and turns? Companies may find it impossible to stay afloat through their most difficult months if they do not prepare properly. Companies can have peace of mind knowing they are protected if a blockage arises by setting up financial reserves.
Building an adaptable budget will enable the finance team to transfer resources as required during this time of uncertainty. What kind of variable costs can your organization face if a new epidemic breaks out? Evaluate the supplementary resources that will be required if your team is just getting started on a new venture. Your team will be able to postpone or move forward with a project if resources are available, regardless of the current scenario. This strategy increases organizational openness and aligns top management on current and future resource allocation.
Streamline Your Financial Planning & Analysis Process
Too many financial departments are trapped in the past, relying on manual data entry. Your team has to adopt scalable FP&A software if they want realistic budgets and more time for value-driven analyses. Finding the correct FP&A solution, whether it’s an Excel automation tool or another sort of financial automation software, can allow your team to remain nimble during the most uncertain circumstances. Teams will be able to put their best foot forward when preparing budgets and projections if they know which FP&A software components to look for and keep up to date on all the current FP&A trends.
The company must engage and source for the ideal solution if they wish to take a more proactive approach to their FP&A plan. Find FP&A software that is more than simply a forecasting tool; it should be a complete solution that transforms finance teams from number crunchers to decision-makers. Outsourced solution businesses can act as the missing element that revolutionizes the entire budget process from A to Z by integrating the solution with a broad variety of data systems and providing vital collaboration capabilities.
