Budgeting

1. Budgeting in the Real World

Understanding common budgeting problems helps ensure your budgeting procedures work.

1.1 Involve the right people in the budget.

• Share relevant information between employees responsible for different functions (eg marketing or purchasing).
• Only give budget responsibility to those with authority to control the outcome.

1.2 Create realistic and up-to-date budgets using last year's figures as a guide.

• Allow at least two or three months to prepare for your annual budget and prepare 12-month forecasts on a rolling basis.Update your budget monthly and link it to your cashflow forecast using actual figures from the previous month (see 7 and 8).
• Update all other budgets accordingly, using the original budget as a benchmark.
• To get the actual data you need, give spreadsheet templates containing relevant budget headings to individuals reporting budget information.

1.3 Use your budgets effectively. Using updated budgets lets you manage your cashflow and identify what needs to be achieved in the next budgeting period.

• Prepare consolidated budgets for the board to review monthly.
• Set up systems for early communication of likely budget variances (see 7 and 8).
• 1.4 Improved budget management will allow your business to spot potential problems and react more quickly. This could be useful during the current financial downturn.
• Produce budget reports as soon as possible after the period end.
• Take prompt action arising from the board review of budget reports.
• Use Key Performance Indicators based on budget forecast reports for more frequent progress updates (real time, hourly or daily figures).