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How To Plan A Budget In A Company? 6 Basic Steps

business budget
Feb 03 2020

How To Plan A Budget In A Company? 6 Basic Steps

A company budget is a summary of planned revenues and expenses, thanks to which you can increase the financial effectiveness of your own company. If you're wondering how to prepare such a statement, you've come to the right place. The maintenance planning training provides ideas and knowledge to plan and maintain a statement. Here are 6 steps you need to take to create a budget for your business.

You've certainly heard of the company budget. Maybe you even planned it consciously! Thoughtful planning of a company budget is not only the domain of wise financial management but also a very useful tool that is worth using when making key business decisions. However, before we go a step further and plan the budget for the next month, quarter or year, it's worth letting you know more about the company's budget.

What is the company budget?

Simply put, a budget is a summary of planned revenues and expenses. You can imagine it as a kind of financial business map.

Thanks to this map, you will plan your next move and make a well-thought-out business decision that will increase your company's financial efficiency. Setting a budget will also help you prepare a financial plan or if you prefer, a financial forecast.

Why plan a budget in a company?

A properly budgeted company budget means more control over the company. The most important benefits of planning a company budget are:

estimating the need for financing and minimizing the risk of losing financial liquidity,
focusing on increasing the efficiency of your business,
objective and reliable assessment of the profitability of planned investments/management decisions taken,
developing an incentive and bonus plan for employees.

When should you prepare a financial plan for your company?

There is no clear answer to this question. One thing is certain! For the good of the company, you should start preparing your budget as soon as possible, for example, when you start collecting data that will allow you to verify your forecast assumptions.

The frequency of preparation and updating of the financial forecast should be adapted to the individual nature of the business. A business that generates stable revenues and expenses can fully prepare financial forecasts once a year. An example would be business in the property rental industry.

A more complex situation applies to business in which, among others, new management decisions, ongoing investments, and the immediate and further environment of operations are very variable. Unsubscribe, paint the picture of the startup. To fully benefit from forecasting in such activities, the financial forecast must be updated at least once every three months.

To be more precise, the day when the forecast starts is the day when I have all the data for the last period of service.

Here are 6 steps you need to take to make a financial forecast.

Step 1. Designate people who should be involved in planning

In this step, you should separate the areas of responsibility in the company, and then appoint a leader for each area.

What should you avoid when choosing specific people? Namely, engaging only people working in accounting.

Why? The specificity of accounting work and repetitive actions mean that people with such competencies approach tasks with a focus on the company's historical data, without knowing its goals and strategy.

It is also not worth involving only the company's management board, due to the concentration in forecasting on the mapping of strategic assumptions without going into the details of each of the business areas.

Who should participate in creating the financial plan? All senior employees are responsible for key business areas, including marketing, sales, logistics, HR, finance, business development, maintenance planning training, and administration.

Once you know who will participate in the process, you can proceed to the next step, which is to indicate the variable financial and operational results, which are influenced by each person.

Step 2. Identify the variables affecting your financial results

Each business has its specifics and its maintenance planning, therefore it is necessary to individually assess the factors affecting the costs incurred and revenues generated by the business. Each time you should start by analyzing the sales funnel and assigning people involved at each of its stages.

Step 3. Prepare a financial model and forecasting forms

Developing a financial model for operations greatly facilitates the update of the financial forecast and significantly reduces the time to prepare final calculations. Based on my experience, updating the financial model with current data should not take more than 2 hours.

Predictive formats will allow each person to focus only on selected variables for which they have the best and sufficient knowledge.

Step 4. Develop a business development strategy

You already know that one of the goals of forecasting is, among others, to increase the financial efficiency of the business. Setting strategic, operational and tactical goals and focus on maintenance planning training helps to achieve the assumed goals.

Strategic goals are large, long-term goals, for example, expansion into a new market.

Operational goals determine how you intend to achieve your strategic goal, for example, building a team responsible for foreign expansion.

Tactical goals are individual, specific actions that bring the company closer to achieving operational objectives, for example, developing a recruitment process, implementing new people, adapting the application to the preferences of customers on a new market.

The management should supervise the efficient direction of maintenance planning training activities. Only in this way can you consciously:

plan necessary material investments,
prepare a forecast of revenues and operating costs,
indicate the most appropriate sources of financing,
allocate cash surpluses to capital investments.

It is worth being aware that the decisions and operations of one department affect the functioning of another. For this reason, the efficient flow of information and data between company areas is of great importance.

Step 5. Preparation of the financial forecast

Strategic assumptions should be communicated to the key employees of the company designated in the first step. For each update of the financial forecast, it is worth setting a time frame to keep in mind the time from the start to the receipt of the final data. The time to obtain management information is extremely important here. So how long does the forecasting process take? Maximum 2 weeks – I met this in a company employing 38,000 employees. In a company from the SME sector, the financial forecast update process should take 3 business days.

Another element worth paying attention to during financial planning is sticking to previously prepared forecasting forms with the developed financial forecast.

Step 6. Analysis of the financial forecast and determination of the action plan

The last step is the quintessence of the financial forecast. During this step, you assess the impact of planned strategic, operational and tactical activities on the projected financial results of the business. Thanks to this, you can make new decisions today, which will contribute to obtaining even more favorable financial results than those forecasted. Such actions would not be possible without knowing the consequences of your decisions in advance.

How To Plan A Budget In A Company? 6 Basic Steps

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