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How to control your budget correctly?

How to control your budget correctly?

Sooner or later any company, and even any person, comes across the fact that at the end of the month they find out they have spent more than it was really planned.

Almost always the first attempts to organize the process of the budget control will be unsuccessful, since it is unclear where to start, actually.

The most common attempts to regulate and adhere to budgets are:

to introduce new rules for approving an each expense and get everyone to sign everything by a financial director or an accountant.

Why it does not work:

In any process where people participate, there can not be 100% control, the human factor can not be cancelled. If all costs are approved in writing, then such cases still arise:

  • You need to make a purchase, but an approver is not at their working place, that is, the approval will be made post factum
  • the account was approved, but the budget was not considered on time - as a result, the budget is exceeded
  • paper red tape makes you think again, whether you need a purchase or not. And as a consequence, important supplies can be postponed or completely cancelled

Ensuring that all the expenses are collected in an excel table or googledoc to calculate the amount of current expenses

This method can only work with small amounts and a small number of people:

Benefits:

The cost of implementation consists only of the time of employees who are responsible for this process

Time for implementation can take only a few hours

Disadvantages:

human factor

labour costs for the information input

time to find any information

It is impossible to track who made the changes, and, consequently, it is difficult to correct an error

In order to solve the problem of budget control comprehensively, it is necessary to collect the information on the company's expenses correctly at the beginning, thus gaining an opportunity to analyze the costs. Budgets are compiled being based on the analysis data.

Once you have entered the process of collecting and approving all the costs, you can enter restrictions on purchases.

Which groups can the constraints be divided to?

Each company analyzes the expenses in its own way, based on the business specifics.

The most common ways of sharing expenses and budgets are:

  • by departments (branches, divisions, offices)
  • by expenses categories
  • by expenses accounts
  • by sales / production groups (their own customized cost-centers)

Less common are constraints that have a two-level structure. For example:

- by departments

  • division of the amount, allocated to the department, into the expenses categories  (expenses account)

- by the sales / production groups

  • the amount division allocated to the group into expenses categories (departments, expenxes accounts)

In general, a two-level cost-sharing structure is introduced by companies that have several sales or manufacturing directions, a large number of departments and employees.

In purchasing, this process is described as "Spending under management" and "Maverick spends".

Spending under control means that there is a request / order for an each expense, there is a statement from a responsible person, the order is carried out by a supplier who has a contract with the company and this budget is allocated for this expense.

Maverick spends are purchases that occur spontaneously, for example, something has broken down, or something is necessary for a new customer, so something special or new materials are to be purchased. Information about such expenses comes post factum after delivery / service providing.

If all the purchases are usually conducted according to an approved process and the data is collected in one place (for example in Precoro), then they can easily be predicted. It is considered normal when Maverick spends are 15-30% of the total exenses.

How can this process be built in Precoro?

1. First, configure the collection and approval of requests (or orders).

2. Add your suppliers and their contracts.

3. Create product catalogues for the suppliers with prices approved in the specification.

4. Identify a responsible person who will monitor the relevance of data on suppliers, contracts and goods.

5. Add the company's cost-centers.

6. Then you can start adding budgets.

  • Go to the section Budgets
  • Add a new budget - select the validity period, the list of locations to which this budget is distributed and save
  • Next, when creating orders, select the budget to which you want to include an order
  • Each order that is carried out within the budget will be displayed in the budget analytics

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