Budgeting is such an essential part for organization and it move through numbers of procedure. The process for the preparation of budget might be varied from one organization to another before it could be finally accepted. Here are some sort of important stages in budgeting process as follow:
Stage 1: Establish who will take responsibility for the budget-setting process It is crucial part to ensure that the committee who responsible to the budget has real authority within the organization (e.g. the budget officer, functional heads).
Stage 2: Communicate budget guidelines and policy to relevant managers The long-term plans and objectives of the business should be the foundation before drawing up the budgets. It tends to be that the managers should aware and communicate with the budget policy of the company (e.g. proportion of forecast sales, diminishing value) and all the relevant guidelines. The budget committee has to make sure that the managers have all of the necessary information.
Stage 3: Identify the factors that restrict output
The plan might not go as it is and there might be some aspects that limit the business to achieve its objectives to maximum level. This limited ability to reach as the budgeted is known as key factors or limiting factors. The key factors could be the shortage of labour and materials, and the capacity of plant or machine.
Stage 4: Prepare the budget for the area of the limiting factor (sales budget) The preparation of sales budget is important for the business to determine the overall level of operations that may limit the business’ output. The ability to sell is commonly the key factor which simply cannot be eased. It is difficult to forecast sales level and maybe the management ought to rely on the judgments of sales staff, statistical techniques or market survey to arrive at a sales budget.
Stage 5: Prepare draft budgets for all other areas
In line with the sales budget, the other...