A budget is the clearest way to keep track of finances, income, and expenditure. It can help you avoid stretching further than the end of your blanket and support your company in moving towards your goals. What is a budget plan and how is budgeting done? Let's get into the details!
Companies rely on a variety of resources to carry out their activities, such as human, material or technological resources. Managing these assets and putting them at the service of objectives is a cyclical process, with planning in the first phase, budgeting in the second and forecasting in the third.
The budget is always for a specific cycle, for a specific period. It can be long-term, for example for the next 10 years, or short-term, for example for a project lasting for only a few months. The point of budgeting is to summarise the available data in such a way that the results reveal opportunities for the company. An organisation can therefore have several budget plans simultaneously, each assessing the financial conditions for achieving a strategic goal.
Budgeting is a complex process. Take, for example, a project for which you want to prepare a budget. It is not enough to take stock of available resources and expenditures, you also need to think about things like planning for manpower, equipment costs, and future needs.
Budgeting has multiple benefits. It can help you track financial movements within your company and available cash flow for projects. Financial maths can also shed light on where money is 'going', and how to reduce expenditure. Last but not least, it can also reveal financial problems that could lead to serious long-term consequences.
In summary, the budget is about allocating financial resources to achieve the objectives set by the company.
There are several ways to plan a budget, but there are certain steps that appear in all versions. Let's see what they are!
The first step is to collect the revenue sources. Financial statements from past years can help you a lot during this process. Record this data on the revenue page. This will be the amount that will flow into the company.
Once you know how much is coming in, the next step is to add up the costs. The first step is to list fixed costs that do not depend on the company's performance and results. These costs are typically fixed in contracts, such as the rent for office space, and various insurances.
After the fixed costs come the variable costs. These are expenses that vary according to performance and results. For example, commissions. The more products the sales power sells, the more commission the company must pay them. But you can also take the example of a clothing factory, where the more textiles you produce, the more clothes you need to store.
It's important to be prepared for every situation and to be prepared for when things don't turn out as expected. In such cases, it is an innovative idea to set aside an emergency fund that is available for business if necessary.
With the data in hand, it is now easy to conduct the analysis. This will give us an idea of the expected results.
Budget planning can start now but choosing the right software can benefit you. Enhanced budgeting software can be used to simplify the preparation of budget plans, track income and expenditure, create plan versions, automate the checking and approval process, and integrate, merge and split different budget plans.
These functions are all available in the Jedox software. Jedox simplifies the planning, analysis, and reporting processes. The integrated EPM platform brings corporate governance into one system, of which budgeting is an integral part.
Excel spreadsheets play a key role in financial planning, but they are difficult to understand and usually are full of errors. Jedox plays a significant role in taking database management to a new level and helping to turn data into results.
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