Budgetary allocation and monitoring play a crucial role in organizational financial planning. Not only does it ensure the business can continue to operate efficiently, but it is also indicative of the organization’s current resources. When companies fail to set budget allocation limits, there’s a significant risk of overspending and exceeding revenues, resulting in financial problems that can threaten the organization's overall health.
This article will explore the common budget problems in business and how budgeting and forecasting software can help with proper budget allocation.
Common Budget Problems in Business
- Budgets are prone to inaccuracies. Budgets are typically based on a set of assumptions about a business’s operating conditions. This means that if there are any changes to the business environment, this could change cost structures, significantly impacting budget expectations. This is prevalent in businesses today that are facing economic downturns and recessions where the expected budget is no longer feasible and unable to support the company due to changes and losses in their revenue structure. Unless C-suites can override the budget, department heads may continue to spend their authorized budget, which leads to losses and further prevents the business from earning a profit. Changes in interest rates, currency exchange rates, and fluctuating commodity prices can also impact budget expectations.
- Creating budgets is time-consuming. One of the top problems with budget allocation processes is how long it takes to develop budgets and monitor them simultaneously. When organizations do not use budgeting software, the process may be tedious and take even longer. In big organizations or industries where conditions are constantly changing, this may entail repeated iterations of the current budget model, which takes time.
- Poor budgeting leads to bad decision-making. One of the core problems businesses have with budgeting is the lack of follow-through. Budgeting is ever so present when top management needs to formulate a sound budget before the end of the fiscal year. However, organizations do not have a clear strategy to ensure the organization can stick to the budget after that. When the organization is faced with sudden shifts in the market, companies often do not have a system set up to review and pivot the strategy as needed. When organizations do not have the means to make the required changes, it puts them at a significant disadvantage against other competitors that do.
Where Budget Allocation & Monitoring Fits In
News on shifting interest rates, unpredictable markets, and global economies hitting a recession for the first time in years should be enough of a warning to businesses that nothing is ever permanent, including their budget. In any agile organization, reviewing and monitoring budgets should be central to their financial strategy.
Budgetary allocations should be monitored regularly to ensure the budget is sufficient to meet growing business expenditures. Organizations need to have a proper tracking system for purchase orders and bills. The purchase orders and invoices should be matched and reviewed regularly against the budgetary allocation to ensure funds remain sufficient for the entire year.
Proper budget allocation and monitoring also ensure organizations can control costs and eliminate wastage, which promotes efficiency.
Budget Allocation & Monitoring With EFP Cloud
Budget allocation and monitoring play an essential role in strategic financial management. Having a budgeting and forecasting software like EFP Cloud, which offers finance budgeting, planning, and forecasting, can make it easy for organizations to consistently allocate and monitor their budget without their finance team having to do all the legwork themselves. It even includes AR & AP, advanced consolidation, and customer or product budgeting. EFP Cloud makes it easy for teams to collaborate with the same budget or forecast. It also fast-tracks budgeting and forecasting for finance teams through automation.
If you’re still on the lookout for a reliable budget allocation and monitoring software for your business, look no further than EFP Cloud and get a complete FP&A budgeting and planning solution that can grow alongside your organization.
Try EFP for 30 Days
We don't want you to commit to something you are not sure yet.
So we would like for you to try EFP first before making any decision.
No commitment required - try EFP for 30 days.