The Budget Process

Topics: Management, Small business, Planning Pages: 6 (1747 words) Published: August 12, 2010
1. Budgeting - An Introduction
A budget is a plan that outlines an organizations financial or operational goals. It is an action plan. It helps a business allocate resources, evaluate performance, and formulate plans. Understanding the importance of budgeting is the first step in successful financial planning. This tutorial introduces budgeting and the 5 most commonly used methods of budgeting 2. Preparing & Controlling a Budget

Budgeting is potentially a managers most valuable planning and management tool - but only if budgets are carefully planned and monitored. Depending on the size of the organization, preparing a budget can be a very complex process. This tutorial focuses on important aspects of budgeting - preparation and control. 3. Credit Management

Firms that plan to offer credit terms to customers need to address the issues such as assessing credit worthiness, trade terms, credit period, collecting payments etc., before the credit decision can be made. These issues will be discussed in this tutorial. 4. Financial Planning

Financial planning is vital for every firm because:
- it outlines the firms goals and provides benchmarks against which future performance can be measured - it identifies the interaction between the firms investment and financing decisions - it enables the firm to cope with changing business conditions This tutorial outlines the financial planning process and shows how models can be used to forecast a firm's future financial performance. 5. Working Capital Management

Most decisions the financial manager will make are short-term in nature for example, organizing a 90-day bank loan to plug a financing gap. Though easier than long-term financial planning, short-term decisions are no less important. This tutorial focuses on the types of short-term assets and liabilities owned by a company and how the company can most efficiently use them. It also illustrates how short-term funding requirements can be met. Once your business is operational, it's essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business - and its finances - on track. This guide outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business' financial position more effectively and ensure your plans are practical. Creating a budget

Creating, monitoring and managing a budget is key to business success. It should help you allocate resources where they are needed, and should not be complicated. You simply need to work out what you are likely to earn and spend in the budget period. Begin by asking these questions:

* What are the projected sales for the budget period? Be realistic - if you overestimate, it will cause you problems in the future. * What are the direct costs of sales - ie costs of materials, components or subcontractors to make the product or supply the service? * What are the fixed costs or overheads?

You should break down the fixed costs and overheads by type, eg: * cost of premises, including rent or mortgage, business rates and service charges * staff costs - eg pay, benefits, National Insurance

* utilities - eg heating, lighting, telephone
* printing, postage and stationery
* vehicle expenses
* equipment costs
* advertising and promotion
* travel and subsistence expenses
* legal and professional costs, including insurance
Your business may have different types of expenses, and you may need to divide up the budget by department. Don't forget to add in how much you need to pay yourself, and include an allowance for tax. Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. See the page in this guide on planning for business success. Once you have got figures for income and expenditure, you can work out...
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