Budgeting for Future Success

Why budget?

Budgeting forces companies to anticpate and prevent problems, create strategy, measure results, motivate staff, and save time.

What is it?

A budget covers the process of :

• defining objectives;
• forecasting expectations of sales, profits, and expenses of every sort;
• deciding what actions will best help the company achieve these targets;
• deciding how much money will be needed to support these actions; and
• finally, providing a way to monitor whether the actions chosen are appropriate or whether they need to be modified.

When should a budget be created?

There are no fixed time periods a budget should cover.  The longest range budgets can cover a period of between three and five years.  A more typical period is one year, to coincide with the company's financial year.

How should a budget be created?

DEFINE OBJECTIVES by

• understanding your company,
• listening to company sections,
• summarizing core aims,
• setting financial targets, and
• defining strart-up objectives.

GATHERING INFORMATION by

• estimating sales and revenue,
• estimating expenditure,
• estimating profits/loss, and
• challenging the figures.

CREATE A CASH BUDGET.  No final (or master) budget can be complete without a cash budget that will

• show how money will be moved to and from the business bank account.

How should a budget be monitored?

SET A TIME PERIOD.  Although some companies operate on an annual budget, most allow for quarterly, if not monthly, observations.

REGISTER ACTUAL RESULTS.  Write down the results achieved by the company and compare them with projections.

CATEGORIZE VARIANCES.  Divide into price, volume, and timing.

ANALYZE VARIANCES.  Ask yourself in each of the categories, what could have led to the miscalculation.

REVIEW PROCESS.  Finally, review the way the budget was put together.  It may be that the objectives were unrealistic or not defined specifically enough.