Most businesses have either completed their 2021 budgets or are in the process. As you put the finishing touches on your budgets, be sure to cover some of the finer points in the process.
This means not creating a budget just to do it, instead create it as a useful plan that can be understood and used to help your business be successful.
Management teams are often frustrated by the budgeting process. There are so many details and so much uncertainty. All too often, the stated objective is to create a budget with or without everyone’s buy-in for how to get there.
To put a budget in the best position for success, every member of the leadership team needs to agree on common forecasting goals. Ideally, before sitting down to review a budget in process, much less view a presentation on a completed budget, you and your managers should’ve established some basic ground rules and reasonable expectations.
If you’re already down the road in creating a budget, it may not be too late. Call a meeting and get everyone on the same page before you issue the final product.
Account for variances
Many budgets fail because they rely on purely accounting-driven, historically minded budgeting techniques. To increase the likelihood of success, you need to actively anticipate “variances.” These are major risks that could leave your business vulnerable to high-impact financial hits if the threats materialize.
One type of risk to consider is the competition. The COVID-19 pandemic and resulting economic impact has reengineered the competitive landscape in some markets. Unfortunately, many smaller businesses have closed, while larger, more financially stable companies have asserted their dominance. Be sure the budget accounts for your place in this hierarchy.
Another risk is compliance. Although regulatory oversight has diminished in many industries under the current presidential administration, this may change next year. Be it health care benefits, hiring and independent contractor policies, or waste disposal, factor compliance risk into your budget.
A third type of variance to consider is internal. If your business laid off employees this year, will you likely need to rehire some of them in 2021 as, one hopes, the economy rebounds from the pandemic? Also, investigate whether fraud affected this year’s budget and how next year’s edition may need more investment in internal controls to prevent losses.
Eyes on the prize
Above all, stay focused on the objective of creating a feasible, flexible budget. Many companies get caught up in trying to tie business improvement and strategic planning initiatives into the budgeting process. Doing so can lead to confusion and unexpectedly high demands of time and energy.
You’re looking to set a budget — not fix every minute aspect of the company. Our firm can help review your process and recommend improvements that will enable you to avoid common problems and get optimal use out of a well-constructed budget for next year. Contact your Rudler, PSC advisor at 859-331-1717 for any questions that you may have.
RUDLER'S TAX MANAGEMENT & PLANNING TEAM
This week's Rudler Review is presented by Drew Sullivan, Senior Accountant and Jeff Epplen, Senior Manager.
If you would like to discuss your particular tax situation, contact Drew or Jeff at 859-331-1717.
Rudler PSC has established a Tax Management and Planning Team, a group of professionals who specialize in tax services. These highly qualified and experienced tax specialists meet on a regular basis to discuss upcoming client engagements, current issues relating to our clients and regulatory changes. Be sure to receive future Rudler Reviews for advice from our tax experts, sign up today !