Here’s a question to jump-start your day: How is your department tracking to your September progress of managing budget? If you’re like most of us, you probably have to dig out a spreadsheet to review the plan, (make sure you have the right version), then pull up your expense software to see what’s been submitted so far, and finally blast out an email to your team asking for estimated travel costs for the rest of the month.
Now what if your boss or finance team asked you to cut spending by 20%? Would you be able to identify and eliminate the least important expenses for the month? Or would you send out a department-wide email imploring everyone to freeze any upcoming trips or purchases and then hope for the best?
Managing budget and spend is of critical importance for companies of all sizes. When done right, budgets reflect a company’s strategic plan. They allocate the resources (people, money, and equipment) needed to execute it. But when budgets go off track, they have painful implications on cash flow, revenue, and the bottom line.
The reality is that managing budget and spend is time-consuming and inherently complicated. We recently surveyed nearly 250 US-based business owners, CFOs, and managers to build a deeper understanding of how companies of all sizes manage this critical business function.
Not surprisingly, most respondents’ companies set budgets on an annual basis (55%), despite best practices that recommend rolling budgets. Business conditions change throughout the year, and budgets should reflect those changes. Just 14% of respondents said their companies set and adjust budgets periodically through the year.
Company budgets are notorious for being static and out-of-date. Part of the problem stems from the tools in use. Many companies (43%) continue to use manual processes and antiquated tools like spreadsheets.
Discretionary spend, which includes travel and entertainment, office supplies, and software subscriptions, among others, represents up to 25% or more of the annual budget. It is the area of spend where companies can exert the most control in the short term, but it is also the most complicated to manage, due in part to the fact that 25% of respondents have no idea how much of their budget accounts for discretionary spend.
The results reveal that new tools are needed to make it easier to answer the question “How are you tracking to budget?” In the future, budget and spend need to be integrated into a single intelligent process that increases financial visibility at all levels of the company so that employees, managers, and finance teams can make strategic decisions about where to invest resources.
Center, is a financial technology company tackling business spend challenges through a unique combination of budgeting software and a digital, connected corporate card.
By Naveen Singh, Cofounder and CEO, Center