For most businesses, having an accurate budget is synonymous with success. Despite the need for a solid budget, many companies struggle to create actionable spending plans that they can rely on. This article will cover how and why you should start utilizing the power of data analytics software for budget planning.
Businesses and Budgeting: A Love-Hate Relationship
While any chief financial officer (CFO) worth their salt will tell you they spend an exceptional amount of time agonizing over budgets with other financial executives, it is unlikely that they will admit to finding any pleasure in it. Case in point: In his famous book titled "Winning," Jack Welch, the former chief executive officer of General Electric, quipped about budgeting: "It sucks the energy, time, fun and big dreams out of an organization." While it may be a harsh statement, it does relay most financial executives' aversion to budgeting.
The reason CFOs and other financial executives don't like budgeting is simple: It's difficult, tedious, and often takes far more time than it should. Despite all of the complaints, budgeting is incredibly important. Accurate budgeting can mean the difference between meeting fiscal projections, giving out Christmas bonuses or having to lay off hundreds of employees due to inaccurate financial expectations. For these reasons, taking a laissez-faire attitude toward budgeting can be incredibly dangerous for organizations that want to grow and succeed in the future.
Fortunately, budgeting doesn't have to be a slog. Thanks to modern data aggregation capabilities, budgeting can be easier than ever before, but only if businesses use data analysis software appropriately.
Value of Data Analysis in Budgeting
Thanks to modern recording technology, the days of poring over several novels' worth of spending information are on their way out. Businesses can now track all of their spendings via automatic data collection and recording of transactions.
Once spending data has been aggregated, the next step is understanding how the information can be interpreted for budget planning purposes. To this end, employing data analysis software can be incredibly helpful. Data analytics software allows you to understand exactly how your organization is spending money, and therefore, exactly how you need to budget to increase the value of your business in the future.
And it’s not just about finding insights into financial concerns, sharing those insights with stakeholders in clear, understandable, and compelling reports is essential for buy-in and budget approval.
You should use your data analysis software to analyze the following aspects of your spending:
1. Sales and other revenues - this information will build the foundation for your budget. Since your spending data should be accurate and if you've been using your data collection software appropriately, you shouldn't have to worry much about accuracy but err on the side of caution to be safe. Use last year's sales and revenues data to set projections for where you want your company to be financially at the end of the current fiscal year.
2. Total costs and expenses - after identifying your sales and revenue targets, you can figure out how much it will cost your business to meet those goals. Costs in this category can fall into three sub-categories:
Fixed costs - expenses that remain constant whether or not your sales rise or fall. For example, rent.
Variable costs -expenses correlated with sales volumes. An example of variable costs would be the materials needed to produce your products or services.
Semi-variable costs - expenses that can be influenced by the volume of business you're taking on. For example, you may change your advertising budget based on how well a product is doing.
3. Profits - the reason that you're in business in the first place. Subtract your projected costs from your expected revenue to estimate what your profits will be at the end of the year.
Once you've analyzed these aspects of your organization, you have all the information you need to create an effective budget for your business. Using data analysis for this process allows you to achieve maximum accuracy with your budget, ensuring that your business can grow while remaining profitable.
If you're in search of an effective data analysis software to plan your budget with, look no further than Zoola Analytics. Zoola Analytics will provide your organization with a highly accurate, actionable data that you can use for all your budgeting needs that will let you achieve amazing results. To learn more about what Zoola Analytics can do for you, check out Zoola’s reporting features here.