CAs & CPAs Who Prepare Budgets Are Doing Clients a Great Disservice

The reality is small business owners either don’t budget or are not very good at it. The people best placed to correct this problem are accountants because we love playing around with multi-column spreadsheets. So, if a client toys with the idea of introducing a budget into their management regime, or a third party requires one it is not surprising that we take a lead role in the budget process. In doing this I believe we are doing the small business community a great disservice.   

Parents know not to do their children’s homework as it circumvents the learning process. In many aspects of the work we do better value would be delivered by resisting the temptation to do and instead teach the client how to do it for themselves. Budgeting is one such area.

I conclude this post with suggestions as to the better role we could play in the budget process because if we are always the doer our small business clients will continue to suffer a budget process that is lacking in so much.

Democracy – It’s Overrated

ASIC require company directors to make an annual declaration of solvency. I expect many sign the minute with no idea whatsoever of whether their business is solvent. If I was the Government, it would be mandatory for every business to document why they believe their enterprise can pay their debts as and when they fall due as well as provide their external accountants with a financial projection for the ensuing financial year.

Of course, that will never happen because we are a democracy and I can’t be the Government, all on my own. However, this does not prevent me from encouraging accountants and business advisors to teach their clients about the importance of budgets and more importantly – how to prepare them.

Accountants Should NOT be Preparing Client Budgets and Forecasts

Financial budgeting is an essential part of running a successful business. It helps to plan and manage resources effectively, set achievable targets, and make informed decisions. Yet most privately owned businesses don’t bother with budgets, or at best, delegate the responsibility of budget preparation to their accountants. While this may seem like a convenient option, it is by no means the best approach.

Business Owners Know their Business Best

Accountants may be experts in financial matters, but business owners are the ones who understand their business operations, market trends, and customer behaviour. Therefore, they are better equipped to make informed decisions regarding budget preparation. By taking ownership of the budgeting process, owners can create a more realistic and accurate budget that reflects the unique needs and challenges of their enterprise.

Preparing the Budget is a Learning Opportunity

Preparing a budget requires a comprehensive understanding of the business’s financials, including the relationship between revenue and expenses. By taking the lead role in the budget preparation process, owners will gain valuable knowledge and insights into their business’s financial performance. This, in turn, can help them identify areas for improvement and enhance their ability to make informed decisions and optimise their business’s financial health.

Accountability Drives Results

If an external accountant prepares the budget the business owner will not have a sense of ownership of the document and in turn will not be accountable for under-performance. Accountability is a powerful motivator in driving performance and achieving results.

Accountability can take many forms, such as setting specific targets, creating action plans, or tracking progress towards specific goals. By creating clear expectations and holding individuals or teams accountable for meeting those expectations, businesses can create a culture of performance and results-driven behaviour.

When individuals or teams feel accountable for achieving specific targets or goals, they are more likely to take proactive steps to achieve those goals. They may be more willing to invest additional time, energy, and resources to achieve success, and may be more likely to seek out new ideas, strategies, and approaches to improve performance and achieve better results.

In addition to driving performance and results, accountability can also help businesses identify areas where improvements may be needed. By tracking progress and holding individuals or teams accountable for meeting specific goals, businesses can quickly identify areas where performance may be lagging and take corrective action to address those issues.

Ultimately, accountability can be a powerful tool for driving performance, achieving results, and improving business outcomes. By creating a culture of accountability, businesses can create a more engaged, motivated workforce and build a foundation for long-term success.

Accountant Prepared Budgets Lack a Vital Ingredient – Input from Those at the Coal Face

Because of their deep understanding of operations and customer relationships involving senior team members in the budget process will deliver a more realistic and resilient final product.

It will increase buy-in and ownership of the final budget. The team are more likely to feel invested in the budget and committed to achieving the targets and goals set out in the plan if they were involved in its preparation. This will lead to better alignment and collaboration across teams, and a greater sense of shared responsibility for the success of the business.

Another advantage of involving senior team members in the budget process is that it can improve the accuracy the final budget. Senior team members are often the ones with the most detailed knowledge of the business operations and can provide valuable insights into the costs and resources needed to achieve specific targets and goals. By incorporating their input into the budgeting process, businesses can create more accurate and realistic budgets that reflect the true costs and resources needed to achieve success.

In addition, involving senior team members in the budget process can help to identify potential areas of risk or opportunity. During the process they may raise concerns or suggest new ideas or strategies that can help to mitigate risks or capitalise on new opportunities.

Forecasting is a Continuous Process

There should only be one budget prepared each year, meaning it is not appropriate to alter the budget as circumstances change. However, it is appropriate to continuously update forecasts in response to actual performance and changing environments.

The budget is the basis for forecasting and if the business owner is not the one who drove the original budget process, they are unlikely to fully understand the components of the document and are less likely to use it as the basis of regular forecasting.

We Will Better Serve Our Clients if we Teach them How to Budget

“If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime” Lao Tzu (maybe)

If you want your client to benefit from the budget process follow this guide.

Start with the basics: Most small business owners do not have a strong financial background or understanding of budgeting, so it’s important to start with the basics. Explain why budgeting is important, how it can help businesses plan for the future, and how it can help them make better financial decisions.

Show them the benefits: Provide concrete examples of how budgeting can help their business, such as identifying areas of overspending or underspending, helping them plan for growth or expansion, and enabling them to make informed decisions about investments or other expenses.

Break it down: Budgeting can be complex, so it’s important to break it down into manageable steps. Provide a clear, step-by-step process for creating a budget, including how to gather the necessary information, how to estimate expenses and revenues, and how to track progress over time.

Provide tools and templates: Many small business owners may not have experience with budgeting software or tools, so providing them with easy-to-use templates or other resources can be helpful. This can include spreadsheets, software, or other tools that make it easy for them to create and manage their budgets.

Offer ongoing support: Creating a budget is just the first step – businesses also need to track progress, make adjustments, and stay on top of changing market conditions. As their accountant, it’s important to offer ongoing support and guidance, including regular check-ins to review their progress, answer questions, and make adjustments as needed.

By taking these steps, accountants can help their small business clients understand the importance of budgeting and how to create effective budgets that enable them to plan for the future and make better financial decisions.