What is Budget Planning and How to Prepare It?
Budget, which literally means “the table showing the income to be obtained and the expenses to be made in the next period”. It is the plan that expresses the future activities of the enterprises and the results in monetary terms. Businesses aim to prepare their budgets in advance, to make decisions about the next period and to prepare for all possible situations. In this way, they get the opportunity to make more accurate planning for the next period by comparing the planned budget and actual expenditures. For example; if the budget of the enterprise is excessive or deficit, the reason for this situation is investigated and a solution is found and they can make a suitable preparation for this situation in the next period. As GTech in this article, we have touched on the issues about budget planning.
Since the budget planning is prepared by anticipating events and situations expected to occur in the future, it should be prepared jointly with all departments of the company in order to prepare the company goals and objectives in the most comprehensive way. Thanks to a budget planning prepared with the participation of all departments, more detailed information about the expenses and revenues of the company can be accessed and a more realistic budget can be prepared.
What are the Types of Budget?
- Income budgets and expense budgets are defined as budgets by subject.
- Project budgets and periodic budgets are defined as budget types according to their handling of the situation.
- Activity budgets and program budgets are budgets according to targets.
- Sales budget and sales expense budgets are budgets for marketing studies.
- Raw material budget, general production expense budget and labor budget are budgets for production studies.
- Financing budget, cash budget and investment budget are budgets related to financial activities.
- Stable budget and flexible budget are budgets in terms of their technical structures.
- Traditional budgets and zero-based budgets are budgets based on starting figures.
- The general budget and department budgets are budgets in terms of scope.
How to Prepare a Budget?
Determining the Period to be Covered by the Budget
The issue that should be decided as a priority for the budget is the period it will cover. Many businesses act with a 1-year budget planning consisting of 3 months and 4 quarters. The main reason for this is that budget plans prepared for longer periods become unrealistic.
Determining the Budget Strategy
Necessary studies should be carried out to determine high-level targets such as income, margin and working capital.
Budget Preparation from Bottom to Top
While preparing the budget, the business needs of all departments and employees should be taken into consideration from the bottom up.
Estimating Cash Inflow and Outflow
While making the budget, a monthly cash inflow and outflow forecast should be made for the next period. With such an estimate, deviations that may occur in the future can be determined and necessary revisions can be made without any delay.
Preparing the Sales Budget
Considering the data of the previous periods, a plan should be prepared regarding the sales amounts, costs and revenues in the period in which the budget plan was prepared.
Performing Deviation Analysis
Not all businesses may encounter the same amount of demand in every month or season of the year. For this reason, the estimates in the budget to be prepared should include such arrangements, and plans for the periods in which more intensive production and sales are expected.
After the budget preparation phase is over, budget targets should be assigned to all departments in the organization.
Approval of Budgets
After the final budget is approved, the budget must be shared with all stakeholders.
Budget Monitoring and Consolidation
The prepared budget plan should be followed continuously, the deviations that occur should be determined and the budget should be reviewed and re-planned according to these deviations or the reasons for these deviations should be eliminated.
What are the Benefits of Budgeting for Businesses?
- It provides anticipation of possible problems to be experienced in the future.
- It unites all departments within the business around a common purpose.
- With budgeting, the efficiency of departments, managers and employees can be measured.
- It forces the business management to act more economically.
It is important for businesses to be able to follow their budget plans as well as their budget planning. Businesses looking for professional solutions in budget planning. Hyperion Budget Planning Solutions enable group companies and department-based planning services to be carried out quickly, accurately and in detail, which are among the basic needs of companies. In this way, companies can quickly intervene in deviations in the budget plan and identify and solve problems as soon as possible.
You can find more detailed information about the products and services offered by GTech and find answers to your questions. You can use the contact us page.