Accountants play a pivotal role in guiding businesses through their budgeting processes. A budget is not just a financial tool — it’s a roadmap for operational decision-making for the entire organization. With any size business, accountants can implement best practices that not only enhance accuracy and efficiency but also improve overall financial health.

Following are three key budgeting best practices that every accountant should consider and the risks involved: 

1. Understand the Business’s Goals and Strategy

Before diving into the numbers, it’s essential to understand the business’s objectives. A budget should be aligned with a company’s broader strategy. The best results come from collaboration between executive leadership, the finance team, operational managers and department heads. Each team brings unique insights into expected revenue, operational needs and potential risks. Including the right stakeholders ensures the budget is comprehensive, challenging yet realistic, and aligned with the organization’s activities.

• Risk: If a budget does not align with company strategy, it can result in a misallocation of resources and have a negative impact on both operational and financial performance.
• Best practice: Involve cross-functional teams early in the budgeting process and collaborate closely with key stakeholders throughout the process to ensure the budget supports strategic initiatives. Ensure everyone understands the financial goals and the role they play in achieving them, communication is clear and everyone has a voice in determining resource allocation. This inclusive approach will make it easier to execute the budget and align everyone with the company’s strategic and financial goals.

2. Focus on Cash Flow Management

While creating a detailed budget, it’s important to not only focus on profit and loss but also on cash flow management which requires an understanding of the balance sheet. Accountants are the key to this given their knowledge of how to bridge net income to net cash flow. Profitable companies often find themselves cash strained. Making sure to proactively budget cash flows is a way to get ahead of any potential issues or, in the case of a cash surplus, plan for new investment opportunities.

• Risk: Focusing on profit and loss will not identify whether investments can be funded through allocation of existing resources or will need additional financing.
• Best practice: Start by understanding how to bridge profit to cash flows. Focus on the key balance sheet components and how they may fluctuate based on factors such as customer payment habits, asset expenditures (e.g., building up inventory or investing in property, plant and equipment) or vendor disbursements. Clearly highlight key balance sheet assumptions in the model to help operations understand how different decisions could impact cash flow.

3. Ongoing Monitoring and Forecasting

A budget is not a one-time exercise — it’s a dynamic tool that requires regular review of actual results and updates to the budget known as forecasts. Actual versus budget results analysis is important to gain insights into variances. Forecasts are an effective way to reflect actual results and changes in circumstances that could impact full-year results and decision making.

• Risk: Not understanding variances or not being able to prepare a forecast as circumstances change could result in not mitigating future risks or missing opportunities for further growth.
• Best practice: When building the budget model, make sure it’s built at the same level of detail as actual results are recorded. If it’s not, either adjust processes on how actual results are captured or adjust the budget accordingly. Make sure to have the right resources to close the books timely and with a level of accuracy to make comparison of those results to the budget meaningful. Investigate all material variances whether positive or negative. It’s also important to make sure the budget is built in a way that it can easily be updated as results come in or assumptions need to be adjusted.

For accountants, helping businesses navigate budgeting effectively is not just about balancing numbers — it’s about enabling them to achieve their financial and operational goals and make informed decisions. By understanding the business’s objectives, focusing on cash flow and ongoing monitoring and forecasting, accountants can help business drive success.