3 Best Practices for More Effective Budgeting
The budgeting process may seem tedious and time-consuming, but it’s important. A professional service firm’s budget is more than a financial document — it’s a roadmap that demonstrates goals, sets expectations and benchmarks, and guides decision making on critical issues related to billing rates, fees, distributions, resource allocation, financing and more. Continue reading as James B. Wagoner, CPA, explains three key budgeting best practices.
To make the most of your budgeting, consider adopting three key budgeting best practices.
- Involve relevant people.
Budgeting shouldn’t be the sole domain of the accounting staff and managing partner/CEO. Particularly when projecting expenses, include all of the relevant players, such as human resources, marketing and IT managers. Additionally, key leaders, partners/shareholders and department heads should be setting revenue goals annually which plays an important in developing an accurate budget.
Have each of these areas (as well as individual practice areas, if applicable) develop their own detailed budgets. In addition to providing more accurate data, expanding participation will make everyone take ownership of the budget and become more invested in meeting it – or even coming in under budget.
- Drill down into expenses.
Expense projections generally are easier to develop than revenue projections. But it’s a mistake to treat them lightly by, for example, taking the previous year’s figures and adding a flat percentage increase of 5% or 10% across the board without examining trends and other related data points. Rather, assess your firm’s current spending, identify your goals for the coming year and determine the amount of spending that will be required to accomplish those goals.
Many firms benefit from greater expense detail, too. Instead of just putting expenses into broad categories like marketing, allocate them to subcategories such as digital marketing, publications, seminars and advertising.
- Review and revise regularly.
Treat your budget like the living document it should be. After all, no budget is ever perfect. Review it regularly throughout the year, not only at year end or when the annual budgeting process starts up again. Make sure to compare projected revenue to the expenses. Check every line item to ensure that it matches expectations and market rates. If necessary, make adjustments accordingly, on both the revenue and expense sides.
Make sure there is adequate cash flow for partner/shareholder compensation, debt repayment, capital expenditures and hopefully distributions of profit.
Laying the cornerstone
Budgeting isn’t easy – it takes considerable (nonbillable) time and effort. Properly developed, though, your budget can provide a solid foundation that allows your firm to take advantage of new opportunities in an increasingly competitive marketplace.
If you have questions like ‘how do I get started’ or ‘when should I begin creating a budget’ for your company, don’t hesitate to contact Jim Wagoner, CPA at 317-260-4472 or firstname.lastname@example.org. Greenwalt CPAs Inc’s Professional Services Team is willing to answer your questions.