Budget Process

The Organizational Budgeting Process

by Kathy on March 5, 2010

Having a formal and structured budgeting process is the foundation for good business management, growth and development. Very similar to our personal finances, discipline and planning should be the cornerstone of a business budgeting process.

So where do we begin? As with most things in managing an organization, budgeting needs to be driven by the vision of the organization and the strategic plan. Organizations that stay focused on their strategy and plan know exactly where they want to spend their resources and have a plan to help keep them from spending in areas that do not line up with the vision.

So what are the steps to budgeting?

Strategic Plan

Having a well thought out strategic plan that supports the vision of the organization is the first step in any budgeting process. When company resources are used, it is imperative that the spending supports the strategy and development of the organization.

Business Goals

A well thought-out strategic plan generates annual business goals. It is these goals that need to be funded by the annual budget. Developing goals is the first step to the budgeting process. Accountability for achieving goals is the responsibility of the board or business owner.

Revenue Projections

Revenue projections should be based on historical financial performance as well as projected growth income. The projected growth may be tied to organizational goals and planned initiatives that will initiate business growth. For example, if a goal is to increase sales by 10%, those sales projections should be part of the revenue projections for the year.

Fixed Cost Projections

Projecting fixed costs is simply a matter of looking at the monthly predictable costs that do not change. Employee compensation costs, facility expenses, utility costs, mortgage or rent payments, insurance costs, etc. Fixed costs do not change and are a minimum expense that need to be funded in the...