Growth is usually a good thing. But when a business grows, personnel budgeting becomes more complex – too complex for spreadsheets.
Personnel costs are a large portion of most companies’ cost structures, and it is vital to have a clear, accurate and detailed view into the impact personnel costs have on the bottom line.
The high level view of a personnel budget will give the projected dollar amount a company will pay in wages and fringe benefits. A spreadsheet can certainly handle this information – but there’s much more to personnel budgeting than wages and fringe benefits.
Here are three signs you’ve outgrown spreadsheets for personnel budgeting:
1. You can’t project the impact of medical insurance premiums. Regardless of the size of your company, medical insurance plays a significant role in overall personnel costs. For example, a detailed personnel budget will allow you to calculate the exact amount medical coverage cost based on each employee’s plan, marital status and family situation.
2. You get ‘surprised’ by bonuses. Bonuses are generally a good thing – your employees are meeting – and exceeding – their targets. The big picture tells you there’s more revenue coming in. But can you project what those ‘home runs’ mean to your bottom line? Do you have a clear understanding of your anticipated bonus pay out for each quarter? Yes, there’s more revenue, but in this case it may not always mean more profit. The last thing you need is to be surprised by what you need to pay out for quarterly and annual bonuses.
3. You have inaccurate numbers for seasonal and hourly workers. Budgeting for salaried workers is fairly easy. You have an annual fixed cost for each employee. Hourly and seasonal employees bring a greater level of complexity. For example, one windows product manufacturer in Maine sees significant seasonal fluctuation. Summer is their busy time; winter is slow. But simple changes in seasons – an early spring or exceptionally warm fall will stretch their season – resulting in larger payroll expenses. Or in this season’s case, our late spring means a shorter season for them.
The complexity of personnel budgeting is further magnified by the number of employees. A spreadsheet could manage these details for 10 – 20 employees (although it won’t be easy). But once you move from a very small business to a true SMB, your spreadsheets will proliferate, the formulas will break and the data can become ‘untrustworthy.’
If these signs fit your situation, it’s time to look into a more sophisticated approach to personnel budgeting. After all, it’s your bottom line – and you need a clear picture of it.