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Bridging the gap between budgeting and risk management

Posted on 11/22/19

At many companies, a wide gap exists between the budgeting process and risk management. Failing to consider major threats could leave you vulnerable to high-impact hits to your budget if one or more of these dangers materialize. Here are some common types of risks to research, assess and incorporate into adjustments to next year’s budget:

Competitive. No business is an island (or a monopoly for that matter). The relative strength and strategies of your competitors affect how your company should shape its budget. For this reason, gathering competitive intelligence and acting accordingly is a must.

For example, if a larger competitor has moved into your market, you may need to allocate more funds for marketing and advertising. Then again, if a long-time rival has closed up shop, you might be able to keep those costs the same (or even lower them) and channel more money into production as business picks up.

Compliance. Although federal regulatory oversight has moderated under the current presidential administration, many industries remain subject to myriad rules and regulations. State governments have also been aggressive in their efforts to gather additional revenue through oversight.

Look into how compliance rules might change for your business next year. Could a planned strategic move subject you to additional or stricter regulations? Factor compliance risks into your budget, whether in the form of increased administrative requirements or costly penalties if you slip up.

Internal. The U.S. economy is considered relatively strong. But that doesn’t mean you should worry any less about what’s arguably the biggest internal risk to your budget: fraud. Employees may still have plenty of rationales for stealing from you and, perhaps disturbingly, a 2019 benchmarking report from the Association of Certified Fraud Examiners found that 58% of in-house fraud investigation teams had inadequate levels of antifraud staffing and resources.

If this year’s budget suffered from fraud losses, you’ll absolutely need to allocate more dollars to tightened internal controls. But doing so could be a good idea anyway to minimize the possibility that a fraudster will strike. And, of course, fraud isn’t the only internal risk to consider. Will your hiring costs rise in 2020 because of anticipated turnover or a need to increase staff size? Will training expenses go up because of a strategic initiative or new technology?

As the year winds down, business owners should be giving serious thought to their 2020 budgets based on financial reporting for the year. Our firm can help you undertake a sound budgeting process that includes the identification and assessment of specific threats.

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