Annual budgeting goes wrong in a few predictable places: last year's spend is misclassified and hard to explain, departments pad their requests because they expect to be cut, and committed spend stays invisible until the invoice lands. The most reliable fixes are agreeing a single definition of committed spend, cleaning cost data before planning rather than during it, and updating approval limits and approvers at the same time as the budget, so the numbers are actually enforced as the year runs.
Budgeting season has started, which means finance teams across the UK, Europe and North America are about to spend several weeks producing an important set of numbers to prepare for the year ahead.
It is safe to say this task is generally met with trepidation. Most finance professionals already know how it will go, with budget season regarded as the most argued-over few weeks in the business calendar.
So why is budgeting season so messy? It is not down to finance teams being bad at budgeting. It is because a budget has to be built out of information that is incomplete, out of date, or in dispute, and then agreed with heads of department who will expect more than you are able to provide. If you are involved in agreeing budgets for the new year in your organisation, here are the five places it usually goes wrong, and some suggestions that could fix the problem.
Almost every budget begins with what the business actually spent last year. That figure is rarely clean. Some of it was genuinely one-off. Some of it is three overlapping software subscriptions that nobody has cancelled. Some of it was charged to the wrong cost centre, meaning the wrong department or project was billed for it, so one team looks expensive and another looks efficient.
Before anyone can plan next year, somebody has to work out which of last year's numbers were real. That job usually lands on one person in finance, and it takes longer than the timetable allows.
If you have had ten percent taken off every request you have made for the last three years, you learn to ask for ten percent more than you need. Everyone involved knows this is happening. Finance then spends two weeks negotiating numbers that were inflated because everyone expected a negotiation.
It is not bad faith. The process teaches people to behave this way, and it wastes a fortnight of everyone's time every year.
A budget rests on assumptions: what suppliers will charge, when new hires will start, which projects will go ahead. Those assumptions change constantly, and the spreadsheet has no way of knowing when one of them has.
So reforecasting happens by email, in a file called something like Budget_2027_v4_FINAL_updated, and the version one department is working from is not always the version finance is working from.
This is the one that causes the most arguments, and it comes down to two different definitions of the word "spent".
When someone signs a contract or raises a purchase order, which is the internal document confirming you intend to buy something before the invoice arrives, that money is spent in practice. But it may not show up against the budget line for weeks.
The result is a budget line that looks comfortable right up until three invoices arrive at once. By the time the overspend is visible, the decision that caused it has already been made and cannot be undone.
Budgets get agreed between finance and senior leadership. Enforcing one, day to day, falls to whoever approves purchase requests and supplier invoices, and those are often different people.
If the approval limits and the list of approvers still reflect last year's team structure, nothing is actually enforcing the new budget. Someone who has just had their budget halved may still be able to approve at the old threshold. A cost centre that has changed owner may still be routing requests to a person who has left the business.
The end of the year makes this worse, because approvers take annual leave while spending carries on.
A budget is only useful if you can tell, during the year, whether you are sticking to it. Most of the problems above come from the gap between the moment someone commits money and the moment finance finds out about it. Closing that gap does more for you than making the original spreadsheet more accurate.
This is where an approval layer earns its place. ApprovalMax captures the commitment at the point of approval: every purchase order and supplier invoice follows a set approval path, with the limits and approvers you control, so a commitment is visible the moment it is made rather than weeks later when the invoice arrives. Approval limits and cost centre owners can be updated to match the new budget, so the structure that enforces spend keeps pace with the structure that set it.