How to improve budget control

Finance leaders across diverse industries and company sizes face the same challenges in financial planning each year: How to improve budget control to reduce costs and optimize spending to operate effectively and reach key business objectives. The answer lies in the effectiveness of an organization’s budget control measures and spend management. As economic pressures increase, the importance of managing budgets becomes even more crucial in navigating unpredictable circumstances.

In this article we’ll explore the typical challenges finance leaders face when it comes to budget control, the advantages of improved budget control, and the practical steps one can take to achieve it by implementing best practices in spend management.

Budget control challenges

Let’s break down some of the challenges that often impede budget control in an organization:

Manual processes: Using manual, email, paper, and spreadsheet-based processes to manage purchasing processes and budgets can be a time-consuming and error-prone undertaking. Data entry across multiple spreadsheets, version control issues, identifying overspending after the fact and human error have a ripple effect across financial reporting.

Limited visibility and control: A lack of visibility and control is often linked to these manual processes as they offer very little oversight or proactive management of spending across departments or business units, leading to unapproved purchases or expenses that fall outside of the budget. This is further exacerbated if you’re running a business with a remote or decentralized workforce.

Lack of accountability and inadequate monitoring and reporting: Without clear responsibility and regular monitoring and reporting, there is a greater risk of overspending or poor decision-making, and difficulty in identifying and addressing issues in a timely and judicious manner.

Inaccurate forecasting: A lack of stakeholder input, inadequate analyses and incomplete data can lead to inaccurate forecasting of revenue or expenses. This can impact spend predictability and realistic budget planning, often leading to overspending or underspending.

Resistance to change: Stakeholder resistance to implementing new processes or technologies can hinder the ability to achieve improvements in budget control and spend management.

If you're facing any of these obstacles, it's possible that you're overspending, missing out on opportunities to save, and managing budgets retroactively, all of which can have a negative impact on your financial performance and long-term goals.

Let’s explore the benefits of improving budget control.

What are the benefits of budget control?

Implementing effective budget control can help businesses optimize their financial operations, leading to improved profitability and greater financial security. By carefully devising and managing budgets, businesses can establish achievable targets and priorities for the upcoming fiscal period, make optimal use of available resources, and minimize wasteful spending.

Additionally, budget control empowers financial leaders to make informed decisions about investments, hiring, and growth objectives, while also monitoring their financial performance and identifying areas of improvement. These practices ultimately lead to stakeholder confidence, making it easier for businesses to secure funding and investment.

The following budget concepts are key to efficient operations, financial management and achieving a company's objectives:

Budget visibility: Budget visibility refers to the ability to track and monitor a company's spending against its established budget. This includes having access to real-time data and analytics that enable decision-makers to approve purchases with confidence, identify trends, risks, and opportunities.

Benefits: Financial transparency, informed decision-making, and accountability.

Budget compliance: Budget compliance is the extent to which a company follows its established budget. This includes ensuring that all spending is authorized and within budget limits, and that financial transactions are recorded accurately and transparently.

Benefits: Prevents overspending, minimizes financial risk, and drives accountability.

Budget control: Budget control refers to the process of managing a company's spending to ensure that it stays within its established budget. This includes monitoring spending, identifying variances, and taking corrective action to bring spending back in line with the budget.

Benefits: Effective budget control enables financial leaders to allocate resources to the areas that are most critical to achieving company goals.

Enhanced budget visibility and compliance can ultimately lead to improved budget control.

Finding ways to achieve these budget control objectives will go a long way in improving an organization’s financial health.

What your organization can do to optimize budget control

Take action with these practical steps and consider deploying technology to further augment the effectiveness and efficiency of budget control strategies.

• Foster cross-functional collaboration for accurate budget planning. Engage key stakeholders and encourage them to take ownership of their department's budget and empower them to make decisions that align with the overall financial goals of the business.
• Develop and communicate realistic budgets that reflect these organizational priorities and financial capabilities.
• Determine discretionary and non-discretionary spending to prioritize their importance and potential impact on the organization's objectives to identify unnecessary spending that can be eliminated or reduced.
• Regularly review and adjust budgets based on business objectives and market conditions; increase or decrease budgets as required.
• Leverage technology to implement spend management best practices that improve budget control via:
  • Automated purchasing processes and approvals.
  • Implementing and ensuring spending policy and budget compliance.
  • Internal controls and auditability.
  • Spend visibility, analytics and reporting capabilities that evaluate multiple budgets, spending patterns, and transactions to identify cost saving opportunities and reduce the right costs.
  • Budget visibility at decision points for informed decision-making and accountable spending.
  • Tracking and managing spending against real-time budgets to avoid overspending.
  • Consolidating purchase orders and enforcing quoting policies to reduce costs.
  • Integrations to accounting and best-of breed budgeting systems for further AP and budgetary efficiencies.

In summary, with a proactive approach to spend management and the help of technology, you can simplify processes, improve transparency and accountability, and establish internal controls that will drive budget control and financial rigor.

Improve budget control with a spend management solution

Transform the way you manage your company's spending by implementing a spend management solution like Fraxion that extends policy, budget, and spend control to the edge of your organization. By automating your purchasing and spending processes, you can gain complete visibility and guide your team's spending behavior while gathering valuable purchasing data, analytics, and insights to inform your budget and spending strategies.

With software-enabled budget visibility at decision points, managers can approve purchases with confidence, while ensuring compliance with budget policies. In reviewing total, committed, available budgets and actuals they can make astute decisions when it comes to spending. Alerts and notifications simplify budget compliance by flagging potential risks and contraventions, notifying users and managers in real-time. This allows for company-wide spending to be closely monitored and kept in check, providing the necessary budget control for effective spend management.

If gaining proactive control and visibility over spending and achieving greater financial discipline are key objectives for your company, it might be worth exploring a spend management solution. We’d like to show you how you can easily track and manage operational spending against multiple budgets, projects, grants, funds and more, with absolute simplicity and transparency. Reach out to a spend management specialist to arrange a personalized demo.