What’s the Purpose of a Budget?
A budget is a key general management tool that helps plan, check, and control financial resources for a project or an organization. The content of a budget is an estimate of revenues and expenditures for a project or organization.
A general manager uses a budget for several purposes:
- Check revenues and expenditures
- Help to identify necessary adjustments to programs and goals.
- Forecast revenues and expenditures for projects, including the timing and forecast of expected revenue sources.
- Create a basis for accountability and transparency.
When should a budget be made?
General managers often complete their budget planning in around 25–32 days. For a bigger project, it can take two months. For new initiatives, we need more planning time to develop an action plan. Then, we can mobilize enough resources to carry out the project.
Why is budgeting so time-consuming?
The budget is based on many plans proposed by many departments.
Before proposing budgeting to higher levels managers, these plans must undergo rigorous inspection and change stages. Even well-known corporations must adjust the department budget at least three times before sending it.
Which factors affect the budget?
The balance sheet, the income statement and the statement of cash flow are the three most necessary financial statements. There are 3 factors that help general management have the most comprehensive view of the financial status.
The balance sheet
The balance sheet predicts the assets of the enterprise, payables and shareholder capital at the end of the accounting period.
Through this, general managers can at once recognize the alarming items (such as debts).
The income statement
The income statement is the expected profit and expenses. Investors, and lenders, often review this report to assess the financial status of a business before deciding to invest.
So, all figures shown in this report must be reasonable and follow accounting standards.
Cash flow reports
Cash flow reports analyze cash flows in and out of businesses. Cash is often listed in three categories: operations, finance, and investment activities. The aim is to categorize cash transactions and keep enough cash received to support the operations of the business.
These three statements play crucial positions in general management.
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Top considerations when preparing a budget plan
How effective your organization is relates to a diverse revenue stream, not dependent on a single funding source. Revenues may include sales of products, government contracts, etc.
Expenses must be classified and must include expenses in units.
It is necessary to ensure that budget items are uniform throughout the organization. This simplifies bookkeeping and makes it easy to report and test financial performance.
Budget items may include employee salaries, office rentals, appliances, phones, expenses for consultants, etc.
Make sure what currency you use and its exchange rates when presenting a budget plan.
General managers need to save comments during the budgeting process. These notes help explain how and how to calculate headings. The budget and the caption show that when the situation changes. It will be easier to edit the budget to reflect the actual changes.
Here are some key steps to take when developing and monitoring budgets
- Identify and plan activities in certain stages with your employees.
- Decide what specific expenditures will be made, sorted by category. Use previous budgets or invoices as a basis. Let’s assume the increase in operating expenses compared to the spending from the previous year.
- Predict what sources of revenue will be, including income from sales or services, local financing, or other companies.
- Analyze the difference between revenues and expenditures. Adjust these amounts to balance the budget. Determine which expenses need to be reduced and how. Different levels of service may need to be considered.
- Develop plans for unusual situations, for example, financial sources arrive later than expected time, crisis or price fluctuations.
- Present the draft budget and revenue and expenditure report to employees, executives, or other key groups for approval. Budget transparency with key stakeholders helps legalize your organization.
- Carry out changes and complete the revenue and expenditure plan, and the time for conducting revenues and expenditures.
- Track the budget according to the project implementation progress.
- Try to have budget planning as accurately as possible.
- Cost estimates need to be reasonable and accurate. Exaggerating the budget will create a feeling of distrust.
- Make sure the budget is in line with the project goals.
- When reporting expenditures with other people, it is important to report any discrepancies between the proposed budget and actual expenditures.
- Ensure that the expenditures are reasonable and directly related to the initial objectives of the proposal.
Managing your budget is not an easy task. You can meet a lot of troubles in the first couple of months. If you stick with it and follow logical planning, you can do it successfully.
Real Estate Investor, OSDORO
Bachelor of Applied Finance and Bachelor of Laws, Sydney, Australia.
David has been in real estate business since 2002 and has a passion for South East Asian cross border cooperation.
As an entrepreneur, David has won multiple tech industry awards, including 2019 for Best AI Startup GITEX awards, 2019 Best AI Technology Accathon Capital USA and recipient of the Wharton Innovation Fund Grant. His last startup, Woveon, was a New York VC backed AI enterprise business intelligence company that worked on customer data stitching and analytics of billions of conversations.
David is also the recipient of state and national Australia technology prizes including the PWC Innovation Award and Intel Enterprise Technology awards.