Why Budgeting fail?
Budgeting, for small businesses, is not as easy as it sounds. However, if you break down the reasons as to why it becomes an encumbrance task, you might find it rather easier to turn it around.
Effective Budgeting not only helps measure business performance over a period or project but also helps in controlling the spending! For instance one of our clients recently while looking at the variance report (budget vs actual comparison) discovered that their bank was charging more than they estimated. This led them to approach the bank for further investigation which resulted in not only the bank rectifying their error for the future but also the bank returned back the amount overcharged erroneously. This could be overlooked very conveniently especially when the volume of day-to-day transactions, is considerably high.
Budgeting is a process and a system that supports an organization to achieve its goals and realize its vision but it is only effective if maintained and set up on a regular basis. Here are a few reasons and problems associated with effective budgeting.
Culture of the organization
Since budgeting helps an organization in achieving its targets, it is imperative that budgeting is embedded in organizational culture. Often where management is lenient with the budgeting, it will not be given importance across the company. Hence, it will become a meaningless exercise. Holding back onto important information such as contracts, invoices, and bills, are an example of such a culture.
Another reason which could make budgeting ineffective is no- availability of real-time data, especially in cases where bookkeeping /data entry is done retrospectively i.e. bills & invoices are not recorded on time and real-time data is not available for comparison with budgeting, hence, defeating the purpose of budgeting.
Other problems similar to above include missing to account for certain expenses such as wear & tear of assets, management fee, etc.
Get in touch if you are struggling with budgeting. We with the help of tech-oriented solutions make budgeting an integral part of the day-to-day business operations.