At these uncertain times, financial planning is crucial to ensure business’ success, and every financial plan needs a sound budget. A business budget is a financial plan that considers incoming and outgoing cash flow, that is, your revenues and costs. Additionally, a budget is a lot more than just financial numbers. A good business budget helps to establish financial control within the organisation. And a budget is a great tool that managers can use to plan and control already scarce resources. A budget plan shows the company’s goals and objectives and how management intends to use and acquire resources to attain those goals and objectives.
Since budgets are undoubtedly important for business resource management, there are a few steps one should take in order to prepare a budget plan:
- Prepare a budget assumptions. Review your previous budget and the current market and how much you expect any of those numbers to change.
- Obtain estimates. Obtain estimates of your sales, production levels and expected costs as accurately as possible.
- Review available resources. Determine the capacity of the resources that you have available from each of your departments. Look at what are your bottlenecks that are constraining the business from growth.
- Review any incoming funding. Obtain the most likely funding that will be available for you during the budgeting period and review any requirements that funding might have. Will it limit you, or may it provide growth?
- On-off costs. Of course, to set your budget you need to review any costs that are going to be associated with that budgeting period, these costs are going to be one-off costs for this measuring period, perhaps a new machine or something similar.
- Create a budget package. Budget package is all of your reoccurring expenses, operating costs and any other costs your business has. At this stage, it also helps to review previous reporting period budgets and analyse what has been budgeted for, and what hasn’t. Whenever possible account for those costs in your current budget.
- Coordinate estimates. Many organisations will use the budget committee to evaluate different budget plans and requirements by different departments. Therefore, one needs to review the interest of each organisational unit in consideration of the budget.
- Communicate the budget. Communicating the budget is one of the crucial steps for preparing a budget. Then, you can answer any questions from recipients. Also, state the due date for the first draft of the budget package.
- Start implementing the budget plan. After presenting the final budget to the managers begin to implement this budget. Start with uploading it to your accounting software, then your financial planning This will help your business to begin further planning and forecasting of the current budgeting period.
- Report and measure. The crucial part of the budget plan is to ensure that your business stays on track of the budgeted objectives, as well as that your business sticks within the budgeted expenses. Therefore, continued monitoring and reporting are crucial to help spot any signs of derailing.
Such a technique to prepare a budget may seem excessive to some small businesses, while others might not think that there are anywhere near enough steps. However, this is a great place to start for all of those looking to implement a strong budgeting process. Additionally, such a process may call for a need to revise the budget during the year. This type of feedback-based budgeting process helps and can be used as a basis for preparing the next year’s budget.
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