Your Guide for a Stress-Free Budgeting Process for Banks and Credit Unions

While critical to the success of your financial institution, many financial managers view the annual budgeting process as necessary but stressful — much like a visit to the dentist. To reduce some of this stress, early preparation is key. This year, kick off your budgeting process with the following steps:

1. Review the Strategic Plan

Start with preliminary meetings involving key leaders to identify their top financial priorities and clarify their roles in the budgeting process. Emphasize areas of the organization that significantly impact revenue (e.g., retail banking, commercial lending, treasury) and those managing substantial expenses (e.g., HR and IT). Use this opportunity to set expectations for timelines for each stakeholder group.

2. Analyze Current Financial Performance

Review the organization’s current year’s financial performance against the 2024 budget, identifying variances and understanding their causes.  Develop updated projections for the remainder of 2024 to establish a baseline for the 2025 budget.

3. Assess External Factors

Gather and evaluate data on macroeconomic factors, such as interest rates, inflation, and GDP growth, that could impact the bank’s performance in 2025.  Research and access regulatory changes that could affect financial planning, such as capital requirements or lending restrictions.

4. Update Financial Models

Review your budgeting system settings to ensure they will support the upcoming budgeting process.  Identify possible changes to the chart of account structure and settings, such as product breakout (e.g. fixed vs variable, term, rate), Update rate indices, prepayment tables, deposit betas, formulas, fixed asset catalog, and payroll taxes and benefits.

5. Review Capital Allocation

Evaluate planned investments in technology, branch expansion, or other capital projects to ensure they align with strategic priorities and have a champion assigned for budgeting purposes.

6. Prepare IT and Data Infrastructure

 Ensure systems are in place for accurate data collection and analysis to support the budgeting process.  Consider investments in technology solutions that could improve financial reporting, budgeting accuracy, and overall operational efficiency.

7. Set Timeline and Milestones

Establish a detailed timeline for the budget process, with clear deadlines for each phase, including assignment of the appropriate budget contributors, data gathering, initial drafts, reviews, and approvals.

8. Schedule a Process Review

Once the board has approved the final budget, schedule time to review the process.  Identify areas where the process may have stalled or gone off track and develop a plan to address these issues so they don’t occur in the next year’s budgeting cycle.

By starting early with these preparation steps, you can ensure that the budget is well-prepared, realistic, aligned with strategic goals, and a little less stressful.

Are you struggling with out-of-date budgeting technology that isn’t designed with banks or credit unions in mind? Take a look at Empyrean’s complimentary budgeting checklist to see which must-have features your financial institution is missing, and download your free e-Book to understand what steps you should be taking to evaluate a new budgeting solution.