Corporate budgets are designed to help a business achieve its strategic goals in a measurable way. Vietnam Briefing highlights the methods and tips for corporate budgeting in the context of the Vietnamese market.
Corporate budgets are an important tool that help an enterprise transform their strategy into action. It is also estimated that up to 60 percent of businesses do not link their corporate strategy into their budgets. While 2020 disrupted corporate budgets significantly, it is of utmost importance to develop a sound corporate budget plan for 2021 given the pandemic this year.
As the world sets into a ‘new normal’, businesses will need to plan all aspects of their operations and budgets including staff, contracts, technology, work from home arrangements, supply chains, and possibly travel.
What is a corporate budget?
Definitions vary, but a budget is a way to allocate funds for financial, physical, and human resources to achieve a company’s goals. Corporate budgets help companies monitor progress towards their goals, control spending, and foresee cash flow and profit. Businesses face difficulties in predicting the future and thus planning for a budget is difficult but an important task. A perfect example is this year, when the pandemic hit, disrupting budgets in a way no one could have predicted.
What is involved in budgeting?
Company managers have to plan for a budget for the upcoming year. This planning involves financial objectives and what needs to done to accomplish the objectives. The budgeting process also involves management control. This involves performance benchmarking and holding managers responsible for keeping action plans on schedule to achieve the desired objectives. It is important to align your company’s budget to your strategic plan. This may involve goals aligned with your company’s HQ, which may be based in another location.
Another tip would be to reforecast. A budget may become obsolete in the next month or year, and especially in the context of COVID-19. By amending the budget, it can be updated throughout the year and even every month. This way the budget will remain relevant and updated regardless of exigencies and diverse circumstances.
A common complaint is that budgeting requires a significant amount of time. A way to alleviate this is by automating reports, databases, and charts in an online capacity. This can be done using existing IT infrastructure with tools such as SharePoint and Microsoft Teams. Businesses can improve access to existing corporate information hubs and promptly create new corporate channels for information exchange. In light of the pandemic, access via Remote Desktop Protocol (RDP) – which encrypts data in transmission can also be considered. This saves tremendous time for different business departments and allows for interactive meetings.
What aspects need to be taken into account for budget planning?
There is no one size fits all. Depending on the industry, businesses will need to tailor and plan budgets according to their requirements and strategic goals. In Vietnam’s context, Dezan Shira’s Senior Business Advisory Manager Filippo Bortoletti notes, “Firms should conduct a legal review of commercial contracts or take into account costs associated with legal advisory if they plan a new venture or a new business line.”
For human resource functions, it is important to take into account the new labor code, which will come into effect in January 2021. While the government is expected to issue guiding documents, HR departments should study the new law on how it may impact HR functions from the new year.
Another important aspect is tax. Businesses should prepare for any changes as per new rules according to the recently issued law on tax administration. In addition, with low tax collection due to the pandemic this year, the tax authorities will likely be more aggressive in tax audits. Businesses should take stock and assess their liabilities and plan for the next year. For businesses with overseas operations, new transfer pricing regulations which will come into effect on December 20, 2020, will also need to be taken into account.
Filippo further states, firms need to take the following factors into account when planning their budgets for next year:
- Estimate revenue and revenue sources;
- How to generate revenues (staff planning, source of materials, partnerships, and outsourcing);
- How to improve the current business model (structure, internal policies etc) and how regulatory changes can impact the aforementioned points; and
- Assess tax impact and net takeaway for shareholders.
Businesses also need to consider staff expenses, raw materials, inputs in general, compliance costs, and recurring and new IT infrastructure costs.
Planning ahead will help business decisions
Corporate budgets are a necessity in most organizations despite the time and resources it can consume. If done the right way, organizations can benefit and achieve their goals efficiently through careful planning. Budgets that accommodate change and make use of technology can act fast and decisively if additional resources become available or if a situation changes drastically.
This year has probably been the biggest learning experience for businesses grappling with the effects of the pandemic. Nevertheless, it allows them to plan better and have a diverse set of simulations when planning for their budgets in the coming year.