Mastering Business Budgeting

Every financial professional should understand the basics of budgeting, whether they are personal financial planners or corporate financial analysts.

Budgeting is a critical aspect of financial planning that provides a roadmap to achieving financial goals. Budgets, both personal and corporate, serve as a tool to help guide financial decision-making. Corporate budgeting can be viewed as a larger and more comprehensive personal budget, with the business replacing the individual. In either case, a budget serves to assist in managing cost and forms a basis by which to measure progress towards a business’ objectives.

What Is Budgeting?

At its core, a budget is a device that is used for planning and governing business activities. The business or corporate budget has existed for more than a century.

A corporate budget is a comprehensive estimation of what a business’ expenses and revenues will be for a given fiscal period. Many times, people think of a budget in terms of expenses, but that is only part of a budget.

Every corporate budget will include both revenue guidance and expense estimates, each being derived from historical results adjusted for assumptions about the future. Budgets are a major priority for finance departments, and every business requires a budget, to some extent, in order to run efficiently.

In today’s environment, business budgeting is one of the primary activities in corporate performance management (CPM). CPM is an approach to business planning, budgeting, and forecasting that integrates all functional areas of a business and links its strategies to its plans, then monitors how the plans were executed. Budgeting is one of the pillars of CPM.

Modern developments in the software are allowing businesses to develop budgets with greater confidence and accuracy. Many ERP systems utilize software applications that can integrate budgets with performance monitoring, allowing for greater visibility on how well a budget is being followed throughout the period.

Goals of Budgeting Within CPM

After a business has set its goals for the upcoming period, it will then focus on creating a budget. The budget serves as the basis of the business’ various plans to achieve the desired outcomes of both their short and long term goals.

For example, the budget might take into account new sub-markets that are now accessible to a company, thereby boosting revenue guidelines. Therefore, the budget can serve as a target for sales departments while working with marketing. 

On the opposite end, perhaps an organization has consolidated its operations and expects to see cost reductions as a result. The budget will provide the targets for operations teams to strive for. In both cases, the budget acts as a resource to reference when designing the individual goals of each department.

A good budget should always be detailed and thorough, resulting in a useful guide to achieve the goals of a business’s strategic plan, and should result in clear performance indicators by which to measure the business’s progress.

The core goal of a budget is to aid in planning. A budget process forces leaders to consider what might occur in the coming period and requires that they plan accordingly. As a result the budget helps to coordinate and facilitate the various activities of a business. This is because managers are often forced to understand the needs of each department and how they interact with one another.

One goal of a budget is to help motivate managers and staff to achieve the desired outcome by aligning their goals with the goals of the business. As a result, managers are left with key metrics by which to evaluate the performance of their department and staff. Consequently, managers can then be evaluated based on how well they executed the plan.

The Budgeting Process

Perhaps the biggest challenge business leaders face is developing a strategy and then converting that strategy into tangible targets. Those targets then trickle down into the budget.

Once the objectives are in stone, strategies can be developed to achieve them. Once a strategy is designed, it will be important to track the effectiveness of the strategy, which means a set of relevant measurements will need to be created. At the conclusion, targets can be identified that will maintain progress towards the objectives and that can be effectively measured.

The process typically starts several months before the start of the fiscal year. Most businesses set budgets and then track them through a process called “variance analysis.” (studying and understanding the differences between the forecasted numbers and the actual numbers and why that happened)While each budget methodology results in slightly different budgeting processes, each budget will usually follow the same systematic path.

As you might imagine, a systematic approach to budgeting yields the most benefit. This is because a well-rounded budget takes into account past results, which must be viewed through the lens of what was happening in the business at that point in time.

That means that a budget needs to account for historical revenue and expenses without taking into account certain extraordinary situations that might have led to extreme circumstances that are abnormal.

The budgeting process serves as a systemic approach to setting goals, gathering historical data, and interpreting that data to build a budget around those goals. This means that the first step in building any budget is to consider the goals of the organization.

Steps in the Budgeting Process

  1. Communicate with management
  2. Establish goals and targets
  3. Develop a detailed budget to support goals and targets
  4. Compile and revise the budget model
  5. Review the budget and make changes as needed.
  6. Approve the budget

Although some budgets might have other steps or exclude certain steps, almost every budget will follow this framework.

The 4 Primary Approaches To Budgeting

Since budgets are a dynamic plan, it makes sense that there should be different approaches that a business might adopt.

Some considerations to make when choosing the appropriate budget methodology are:

●      how much time can be devoted to budgeting

●      how much historical data is available

●      how accurate do you need the budget to be

●      what type of budget best serves your business model

These are the 4 primary approaches to budgeting:
  1. Incremental Budgeting
  2. Activity-Based Budgets (ABB)
  3. Value Propositions
  4. Zero-Based Budgets (ZBB)

1) Incremental Budgets

The most common form of budgeting is incremental budgeting, which takes historical actual results and adds a percentage increase or decrease to arrive at a current year budget. It is by far the simplest form of budgeting and can be easily executed by small organizations and large organizations.

The primary reason for adopting this form of budgeting is when the business does not experience a change in its primary cost drivers.

One criticism of incremental budgets is that they tend to ignore external factors that impact cost.

For example, the cost of steel might increase substantially over the prior year, but the budget only accounted for a minor percentage increase in cost.

It is also likely to result in less active management of cost drivers and can sometimes lead to budget bloat because it does not address inefficiencies.

2) Activity-Based Budgets

Activity Based Budgeting (ABB) is a form of top-down budgeting that attempts to determine the number of resources required to achieve the targets set by management. In a “top-down budget,” the budget is created by leadership and then sent down to the departments for implementation.

This method of budgeting is named after the process of taking into account activities that incur cost throughout the production process. Businesses  then analyze those activities to maximize efficiency.

The budget is an attempt to maximize cost-benefit by thoroughly examining each activity that results in an output. It is a more rigorous form of budgeting because of the level of scrutiny that goes into each activity.

3) Value Proposition Budgets

Value proposition budgeting is an attempt to determine whether or not an item in the budget results in value. The value proposition budget at its core is asking if the cost of the item in question is justified by the value it creates for customers and/or stakeholders.

The goal is to eliminate unnecessary expenses, but not to the extent of a zero-based budget.

Rather a value proposition budget is a way of implementing an environment of value creation by constantly asking why an amount is being included in the budget.

4) Zero-Based Budgets

The second most commonly adopted method of budgeting is zero-based budgets, which begin the process by assigning every department a zero budget and forces the department to justify every cost it incurs.

ZBB is a practice that sets its sights on reducing any expense that is not absolutely necessary to the company’s success.

ZBB is a form of “bottom-up” budgeting in which departments create their own budgets, which are then compiled into one overarching budget that is reviewed and adjusted by management.

The most appropriate time to implement this extreme form of budgeting is when there is a significant need to reduce or contain expenses. It is time-consuming, and the benefits of this approach must be weighed against the cost of implementing it.

Modern Budgeting Tools and Software

Most finance departments operated in Excel, which is slowly becoming antiquated in how it handles complex budgets and presentations. In fact, a Datarails survey shows that 70% of CFOs primarily use Excel for budget-creation. 

Modern ERP systems are integrating departmental information and translating that data into real-time monitoring, resulting in far less time spent on data requests by finance professionals.

Still, Excel maintains itself as being the most user-friendly and comfortable interface for most finance professionals. This is not to say that other tools are not used. A budget is only one component in the financial planning process that ultimately results in a forecast.

Forecasting is perhaps the most labor intensive process, which includes building comprehensive models that are flexible enough to react to dynamic changes while still using the budget as a foundation.

Because of this, more robust software applications are being used to assist not only in the budget process but also in the forecasting, monitoring, and reporting processes.

The most common approach in modern planning and analysis is the use of dashboards, which aim to take data requests off of the hands of finance departments and give users the power to answer their own inquiries instantaneously.

This shift represents an important change in the way the industry is utilizing software to not only assist in planning and forecasting but also to increase the efficient use of data for real-time monitoring against budgets by the appropriate parties.

9 Best Corporate Budgeting Software

Budgeting software for businesses range from simple, a-few-dollars-a-month software focusing  exclusively on budgeting, all the way up to complete financial planning for enterprises. Because of that, we broke it down into 3 categories: Budgeting software for small businesses, medium, and enterprise. 

Top 3 Corporate Budgeting Software for Small Businesses

There are many more options for budgeting software for small businesses when comparing it to the amount of software options for medium or large businesses. This is due to the much larger number of small businesses that exist, the significantly lower prices for small business budgeting software, and the high competition in this category.

(While the term “small business” can have a different definition depending on the country or industry, for our purposes we define it as a business with less than 50 employees or less than $1 million in revenue). 

Some small or local businesses even use personal or household budgeting software for their needs, while others need more high end software for their complicated budgets. Here we cover the top 3 that give a good range in price, ability, and integrations. 

Note: This list does not include software such as Xero or Freshbooks that come with budgeting abilities because it isn’t their main focus. While it might be enough for some companies, we look specifically at budgeting focused software for small businesses. 

1) Budgyt

As the name suggests, Budgyt is a budget-focused software, but it also covers financial planning through organizing and managing financial data. Although Budgyt can be pricey compared to other small business budgeting software (starts at $199/month) it is one of the best out there and receives first place. 

The intuitive interface and simple dashboard makes it easy for collaboration and centralized data to be shared across the board, which is perfect for small businesses who have multiple people working on finances. Budgyt is designed for small to medium sized businesses (and nonprofits as well) looking to streamline their budget planning.

Important features:
  • One of the most amount of 3rd party integrations out of any small business budget software. 
  • Forecasting feature with advanced planning capabilities.
  • Multi department collaboration and centralized data.
  • 5-10 days implementation for most businesses.
Pricing:
  • Budgyt has three pricing plans ranging from $199/month to $699/month. They also have discounted rates for nonprofits.

2) Scoro

Scoro is also an excellent budgeting software for small businesses, as it combines budgeting features with other tools to manage the whole company’s finances in one system. However, it is not as comprehensive as Budgyt due to the lower number of integrations and less complete forecasting abilities. The price reflects it as well (far cheaper than Budgyt) and Scoro is still able to cover most of your budgeting needs if the biggest focus is on the budget alone. 

Scoro also allows you to manage expenses and resources, analyze financial data, and manage project budgets all in one dashboard. This, combined with its unique project management tools, makes Scoro perfect for companies looking to manage their entire financial workflow in one space.

Important features:
  • Big focus on KPI dashboards and metric settings.
  • Sharing abilities on a centralized database makes it good for multiple contributors.
  • Some of the best project management tools for budgeting software.
Pricing: 
  • 14-day free trial.
  • $26 to $37 per user per month depending on requirements. 

3) PlanGuru

PlanGuru is a great budgeting software option that ranks in between Budgyt and Scoro in terms of pricing and abilities. PlanGuru focuses slightly more on forecasting and strategic planning than the rest, and includes features such as financial ratios and cash flow projection for increased planning abilities.

Although it still has a good budgeting function, PlanGuru’s forecasting and planning emphasis makes it a middle of the line budgeting software system with middle of the line pricing.

Important Features:
  • Compatible with QuickBooks, QuickBooks Online, Xero or Excel.
  • Budgeting and forecasting capabilities go up to 10 years in the future.
  • 20+ Standard Forecasting Methods w/ Custom Formula Builder.
Pricing:
  • $99/month + $29/ month for each additional user.

Top 3 Corporate Budgeting Software for Medium Sized Businesses

Although the difference between small and medium sized businesses is sometimes a blurry line, we made the distinction by dividing it into those companies that are looking for a more complete budgeting and finance software (medium sized businesses) and a standard, budget focused software (small businesses). 

That being said, there are some medium sized businesses with simple budgets and cash flows that will do perfectly fine with a cheaper, budgeting-only solution, and there are some small businesses with complex finances that need a much more complete budgeting and financial planning software. 

1) Datarails

Datarails is an FP&A tool that provides a complete financial planning package: Budgeting, forecasting, scenario planning, automation, real time dashboards, and drill down capabilities are some of the functions that Datarails provides that improves the finance department. 

Datarails is also the only completely native Excel FP&A tool on the market, which allows for easy integration and an easy-to-use platform. The centralized platform and audit control are perfect for finance teams that have multiple users who rely on the data for budgeting and forecasting. It also specifically caters to medium size businesses and has some of the most competitive pricing for FP&A solutions of any size. 

Important Features:
  • Ability to continue using your own Excel models for quickest implementation. 
  • Dashboards updated in real time with the ability to drill down to the granular level.
  • More than 70 integrations to conduct the most accurate and data driven decisions.
  • 2 weeks for full implementation.
Pricing:
  • Starts at $2,000/month.
  • Monthly pricing plans – no commitment. 

2) Mosaic Tech

Mosaic Tech is a great budgeting and FP&A tool for medium sized businesses. It streamlines how you produce budgets and analyzes your financial data. In addition, it has great financial forecasting abilities and consolidates data across many different sources. 

While Mosaic Tech and Datarails have many similar features, the biggest difference is that Datarails has a native Excel platform while Mosaic Tech essentially transitions the finance team away from Excel. This ends up taking far more time as the finance team needs to learn a new platform. When integration is complete, the automation and consolidation of data sources (HRIS, ERP, accounting, etc.) makes for improved decision-making in regards to budgeting and forecasting. 

Important features:
  • Easy to consolidate data across multiple platforms.
  • Monitor budgets and track budget performance per project and overall including projects completed, in flight, and upcoming.
  • Maps, modifies, and customizes data. 
Pricing:
  • No pricing available online – customized quotes only. 

3) OneStream

OneStream is also an excellent budgeting and FP&A platform for medium sized businesses and it provides automation, KPI tracking, and cash management. Although the implementation time is slightly quicker than Mosaic Tech, the budgeting function is less robust. 

In addition to medium sized businesses, OneStream also works with enterprise level corporations and focuses on financial and operational insights to support faster and more informed decision-making. Its biggest strength is data analysis and in-system reporting.

Important Features:
  • Automate and accelerate the financial close and reporting process.
  • Personalized dashboards and KPIs.
  • Multiple Access Permission Levels (Create, Read, Delete). 
Pricing:
  • Implementation fee.
  • No pricing on their websites – customized quotes only. 

Top 3 Corporate Budgeting Software for Enterprise Level Businesses

Similar to mid sized businesses, large and enterprise level businesses usually need more than an exclusively budgeting software. This is where FP&A software comes in. Many of the companies here have similar capabilities to those in the medium size business section, but the price and functions are more suited for extremely big corporations with large amounts of data such as Dell and Coca Cola (who use Workday’s software).  

1) Workday Adaptive Planning

Workday is the leading enterprise level solution software for both budgeting and FP&A. The name, number of customers, and reliability, make it an obvious choice for large companies and enterprises. However, the expensive pricing plans and long implementation time create a barrier for small and medium businesses. 

Workday is a budgeting and financial planning software designed to help finance and FP&A teams streamline their workflows, consolidate any number of spreadsheets and other data sources, and improve how they use their data to budget and forecast. Workday also provides excellent HR and other Workday native software that is easier to integrate into companies’ financial planning in comparison to third party integrations. This can help with data formats, access, and complete reliability. 

Important features:
  • Comprehensive budgeting and forecasting tools including revenue management, capital management, expense management and financial statements.
  • Easy to produce balance sheet and cash flow data with a few clicks.
  • Automated board and financial reporting.
Pricing:
  • Implementation fee.
  • No pricing on their website – Customized quotes only. 

2) Prophix 

Prophix is a corporate performance management (CPM) software that provides organizations with tools to gather, analyze and report their financial data, including advanced budgeting. Prophix gives companies all the tools they need to gain complete control over the budgeting process and simplify it as well.

Prophix is a rare enterprise FP&A software that puts an emphasis on budgeting. It is also one of the only solutions that has both cloud and on-premise solutions. 

Important features:
  • Can drill down into data to a granular level.
  • Clean interface with clear visuals in the form of graphs and charts.
  • Advanced sales performance forecasting Including reports and dashboards, self-service analytics and a forecasting engine to drive sales performance.
Pricing:
  • Customized quotes upon request.

3) Jedox

Jedox is an integrated business planning FP&A software that puts an extra focus on business intelligence. Jedox is a great forecasting and planning tool and while its budgeting function is also quite robust, it ranks slightly behind Wokday and Prophix. 

But that doesn’t mean that its budgeting function is lacking. Rather, Jedox empowers companies to analyze historical data and combine it with market insights and trends to plan, forecast, and budget smarter. This saves time and gives the ability to streamline any business process while collaborating with different departments for the most accurate results. 

Important features:
  • Financial planning for short and long term, meant for enterprises with long term growth expectations. 
  • Direct links to many third party integrations and real time updates.
  • Multi currency management and detailed audit trails makes it ideal for international corporations. 
Pricing:
  • Jedox doesn’t provide pricing on their website but gives customized quotes based on different option plans. 

Conclusion

There are many different types of budgeting software, and depending on your company’s needs, a cheap, budgeting-only solution might cover everything you need. However, more complete budgeting and financial planning software cover more complete financial management needs including forecasting, scenario planning, automation, and real time updates, all of which go hand in hand in budgeting. Datarails does just that and is a great option for mid sized companies looking to upgrade their budgeting abilities and save dozens of hours per month.