Ferocious competition. Ever-evolving marketplace. Uncertainty.
It should – in a nutshell, that’s the contemporary business world. Survival is tough, without a doubt, and any potential advantage should be explored and when possible, exploited.
So, what are those advantages? One foundational principle for organizations – regardless of size – is meticulous financial budgeting and forecasting. Know how much money your business is spending and by extension, how much it will need to spend in the coming days, months or years. Adequate budgeting and forecasting is critical to financial well being.
But, somewhat surprisingly, strict budgeting and forecasting processes are not being employed by organizations, large or small. Why? According to consulting giant PwC, maintaining budgeting and forecasting functions is “time consuming and inaccurate.” But, adds PwC, there is a “call to action” to ensure budgeting and forecasting are managed in a precise, detailed fashion.
Such a call, needless to say, is a step in the right direction. But, not all budgeting and forecasting functions are created equal – there are some better, more exact options than others.
Among the leading options is called “continuous budgeting and forecasting”: a process in which a company monitors its budgets (influenced by revenue and expenditures) constantly, rather than establishing pre-defined monthly, quarterly or yearly limits.
By doing away with pre-determined budgets, companies are able to make timely decisions on myriad potential issues. Remember, the world of business can be a volatile one – being nimble is critical and should be desired.
Another benefit of continual monitoring is an increased accuracy of forecasts. As noted earlier, this benefit still eludes many businesses because shrewd budgeting and forecasting are still not being done to the degree.
But for those companies that are continually examining their budgets, CEOs, CFOs and purchasing managers are enjoying more accurate forecasting – they have more up-to-the-minute data to work with and have a better understanding (however imperfect it may always be) about the ups and downs of sales.
This ability cannot be undervalued – the more a company knows about its financial performance, the better it can establish budgets and forecast accurately.
The Procurify Way
So, how does Procurify help bolster an organization’s budgeting and forecasting functions?
Procurify has a suite of features that strengthen both budgeting and forecasting. Among the numerous tools Procurify offers for budgeting and forecasting, inventory, approval routing and electronic purchase order creation and receiving, are three particularly strong instruments.
Procurify has developed a groundbreaking inventory feature, now in beta testing, that gives users real-time data on their inventory, at all times.
This feature provides users with a simple, intuitive point of reference for when a product needs to be re-ordered, which prevents stock out from hurting sales.
And how does having clear, immediate visibility into your inventory aid in budgeting? By knowing, at all times, what you have on hand gives your company the information and data it will need to forecast appropriately and subsequently, set accurate budgets.
The more you know about the current status of your inventory, the better you will be able to predict the, albeit fluid, future. The more you know, the better off you will be.
Approval routing is a business best practice used for managing requesters and approvers in an organization. Approval routing, at its core, is a good internal control.
So, how does approval routing work? Simply put, approval routing is the function of setting a limit on how large a purchase an individual can approve, according to their level in the company.
For example: an employee in the marketing department of a company needs a new MacBook. So, that employee (known as a requester) makes a request in Procurify for the computer. That employee’s manager (known as an approver) will then review the request and if the MacBook in question isn’t too expensive, they will approve the request.
If the MacBook costs more than that manager is cleared to approve (more than, say, $2,000), the request will be sent to the next manager up the chain who is able to approve more expensive requests. Such a process leads to increased security and enhances transparency on spending, which will result in a reduction in unnecessary spending.
Of course, this level of control and transparency has a direct influence on a company’s budgeting and forecasting. All company spending is being approved (by a manager) and accounted for, which prohibits maverick spending. This process is a safeguard against reckless spending and will, as a result, help stabilize a budget.
Electronic Purchase Order Creation/Receiving
It’s instructive to end here with a look at Procurify’s electronic purchase order creation and receiving functions as both affect budgeting and forecasting.
For many small- and medium-sized businesses, purchase orders are still being drafted on paper (a very outdated process, needless to say). Managing a paper-based purchase order system can be difficult – critical data will get lost.
In Procurify, users create electronic purchase orders, which are catalogued in the system. Having that catalogue will give an organization a clear-cut expectation of what to expect from suppliers.
The flip side of Procurify’s electronic purchase order creation feature is the receiving function. Like electronic purchase order creation, receiving gives users up-to-the-minute information on every product (or products) that has been received, and how many of those products have been damaged. Each time a product arrives, it is catalogued in the system.
By knowing, at all times, both what to expect and what has been received from your suppliers will reduce over-spending or repeat buying of a product you didn’t not have a record of. When you don’t know a critical product has arrived in your warehouse, it’s easy to make a rush decision to re-order that product and unfortunately, waste money.
With these tools at your disposal, those in charge of your critical budgeting and forecasting functions will be empowered to make the best decisions they can.
This ability will go a long way in the always uncertain, competitive, fluid world of business.
- Approximately how much time does it take your company to prepare its budget?
- Less than 2 months: 18%
- 2-4 months: 54%
- 4-6 months: 20%
- More than 6 months: 9%
- Approximately how long does it take your company to generate a forecast?
- Less than 2 business days: 9%
- 2-5 business days: 31%
- 6-10 business days: 29%
- More than 10 business days: 32%
- Forecasts have tended to be…
- Conservative (underestimating actual performance): 44%
- Neither conservative nor optimistic: 33%
- Optimistic (overestimating actual performance): 23%
Source (for all): PwC – Financial planning: Realizing the value of budgeting and forecasting.
Data in the PwC report was compiled from a survey of, and interview with, senior finance executives (CFO, controller, VP of finance, amongst others).