Budgeting

by John Kind

The best way to prepare a budget

Whether you have budget responsibility for an entire business or organisation, a department, a function such as human resources, a section or a team, there are ten stages to complete.

  1. Forecast the results for the whole of your current budget period, such as the present financial year. According to the scope of the budget for which you have responsibility, the results will cover all or some of these items: revenue or sales, costs, cash inflows and outflows, changes in assets or resources and changes in both short- and longer-term obligations, such as borrowings. More...
  2. Identify the priorities for your business, department, organisation or team for the next budget period: for example, recruiting additional sales representatives and upgrading the departmental IT system. More...
  3. Convert these priorities into specific and measurable objectives for the next budget period: for example, the sales force should expand by 15 per cent, salaries overall should not increase by more than three per cent and revenues or sales should rise by at least five per cent. More...
  4. Brainstorm the ways in which you will be able to achieve your budget objectives. More...
  5. Prepare a detailed, initial budget (the ‘number crunching’), taking into account your conclusions from stages 3 and 4. More...
  6. Present your initial budget proposals to your senior colleagues. More...
  7. Expect budget ‘challenge’ sessions, as a result of which your initial budget proposals may have to be revised. You may have to prepare several versions of your budget before it is accepted. More...
  8. Agree the final version of your budget and ensure that it is formally approved and ‘signed off’. More...
  9. Communicate. Make sure that every member of staff for whom you have budget responsibility knows what is expected of them to support the achievement of the budget. More...
  10. Monitor your results regularly as soon as the budget period gets underway. More...

Ten stages to preparing a budget – a checklist

In a nutshell, here are the 10 stages as a checklist

  1. Forecast results for the current budget period
  2. Identify priorities for next budget period
  3. Convert priorities into specific, measureable objectives for next budget period
  4. Brainstorm ways to achieve budget objectives
  5. Prepare detailed, initial budget proposals
  6. Present initial budget proposals
  7. Expect proposals to be challenged and revise them, if necessary
  8. Agree and get approved final version of budget
  9. Communicate budget objective(s) to colleagues
  10. Monitor results as budget period gets underway