Questica Blog

Avoiding common mistakes in the budgeting process for engineer-to-order manufacturers

Having real-time access to the budget ensures that engineer-to-order manufacturers aren't overspending on unnecessary items.

It’s common knowledge that a solid budget can keep an engineer-to-order manufacturing company solvent and help grow the operation into a successful enterprise. Budgets establish business goals and capabilities for the upcoming quarter and year. These budgets are a primary component to creating a sensible long-term financial strategy, and any mistake, inaccuracy or error can potentially be devastating.

Even with proper precautions and careful planning, it can still be difficult for engineer-to-order manufacturers to create an accurate budget. However, with the right tools companies can avoid making the mistakes that have the potential to sink operations.

Executives and managers at engineer-to-order manufacturing companies should steer clear of these common mistakes when creating their budgets:

Making inaccurate projections

Overstating long-term projections or ignoring immediate needs can be one of the biggest mistakes a company can make when drafting a budget.

Often, executives may over-exaggerate anticipated revenues. Sometimes this is due to unrealistic expectations and other times it may just be wishful thinking. This can be overcome by using the raw data available to create a budget instead of simply making guesstimates.

Similarly, as noted by Small Biz Technology, trying to under-estimate costs or use the budget to cut corners for necessary expenses can leave a company lacking capital. If these cuts are too drastic, it will box in the company financially, leaving little money for resource allocation, which can take a toll on departments that need additional funds to operate.

Using past budgets, managers can infer what the potential financial projections might be for the upcoming months and year. While these numbers won’t be purely analogous to each other, prior years can provide informative insight into the company’s growth rate, which can be used to extrapolate the next month’s and year’s budgetary needs.

Paying attention to every little detail is a good way to overcome this problem. Using an ERP solution that provides real-time access to this data is an easy way to constantly stay abreast of the actual financial position of the company. Further, having access to the budget numbers in real time allows companies to know if they’re overspending on items they don’t necessarily need.

Using a cloud-based budgeting solution ensures managers and executives have real-time access to this crucial data.Using an ERP solution ensures managers and executives have real-time access to this crucial data.

Forgetting to include taxes

The end-of-the-day balances for a company may appear quite large, and it may seem like they’re possibly even bigger than they seem – this is especially true if the company’s tax burden has not been included in the budget.

While the amount of taxes paid depends on a variety of factors, such as the state of operations, the corporate structure and any losses, it’s important to include taxes during the budgeting process. As noted by Entrepreneur, this covers sales tax on revenue and payroll taxes for employees. Failing to account for this may leave the company with vastly overstated revenue due to the balance sheet counting these finances as holdings. If this happens, it will negatively impact the budgeting process for future projects.

It’s best to discuss prospective taxes with an attorney prior to drafting the company’s budget.

“It’s important to include a buffer in the budget to prepare for the unexpected.”

Failing to expect the unexpected

While budgets should be an accurate representation of the company’s current and projected financial position, it’s also wise to leave a buffer for when unexpected circumstances arise. Equipment failures, natural disasters and external market influences are just some of the many possibilities that can occur to halt production, create downtime or otherwise impact a company’s budget. Although no one can accurately ascertain the unexpected aspects of what will happen in the coming months and years, it’s important to include some extra leeway and wiggle room in the budget to account for the potential for something to go awry. Otherwise, if a major piece of machinery suddenly breaks and needs to be replaced, not having additional funds in the budget to cover this cost can lead to a indefinite amount of downtime.

Not having the right software

Writing down a budget with pen and paper can be a tedious, time-consuming process that can ultimately lead to a series of mistakes. Data entry in a digital spreadsheet can be an equally protracted and inaccurate undertaking. Further, most spreadsheet software, like Excel, does not link to different accounts in different departments and it does not have mobile or on-the-go capabilities either.

Questica ETO, a software solution designed specifically for engineer-to-order manufacturing companies, is the right software for the job. By providing real-time access to all data, syncing up with popular accounting software like QuickBooks and eliminating double entries for the system, Questica ETO gives custom-design manufacturers the ability to keep accurate tabs on every project throughout the entire enterprise, allowing for more detailed and accurate budgets.

Take the first step!