The Budgeting Process

The budgeting process typically has six steps.

Step One: Gather the Budget Package

If you are in charge of preparing a budget, your organization will usually give you a budget package. Typically this contains:

  • Company-wide budget and goals
  • Description of your department and its goals as laid out in the strategic plan
  • Business or performance indicators
  • Past financial statements and budgets
  • List of accounts and profit and cost centers involved
  • Proposed budget, if there is one
  • Allocated budget amount, if there is one (sometimes you are given a pot of money to budget; at other times you need to determine what you need and then fight for it!)
  • Templates for completing the budget

If you aren’t given this information, then go out and find it!

Step Two: Lay the Groundwork

Background Information

The Christmas Party at ABC Company always was the event of the year. People were still talking about the generosity of management well into the following summer. The company always rented the Windsor Lodge, a private and secluded property equipped with guest rooms, party rooms, exquisite food, and excellent entertainment for the party. Employees were provided with guest rooms, babysitting services, transportation, and an all-expense paid party. In addition, there were Christmas bonuses for everyone handed out by Santa (who looked suspiciously like the old man himself). About $50,000 was allotted for the party each year.

Unfortunately, this year the profits of the company have taken a serious drop and the budget for the party and bonuses has been drastically reduced to $17,500. As a member of the management entertainment committee it is your job to allocate the available funds and develop a budget to provide the best party you can with the limited resources. Be creative!

Budget Template

Budget Template

ExpenseLast Year’s ExpensesYour Budget
Accommodations$6,000
Evening Meals$4,000
Beverages$10,000
Entertainment$2,000
Breakfast Meals$4,000
Transportation Costs$3,600
Sub-total$29,600
Bonuses of $100 x 100 workers$10,000
Bonuses of $500 x 10 managers$5,000
Grand Total$44,600

Step Three: Identify Your Goals

You should also write down what high-level goals your budget must have. Some basic examples might be: increase sales by 20%, hire two new staff, or increase production by 5%. For best results, goals should have SPIRIT!

Specific

Prizes

Individual

Review

Inspiring

Time-Bound

Case Study,

Background Information

The Christmas Party at ABC Company always was the event of the year. People were still talking about the generosity of management well into the following summer. The company always rented the Windsor Lodge, a private and secluded property equipped with guest rooms, party rooms, exquisite food, and excellent entertainment for the party. Employees were provided with guest rooms, babysitting services, transportation, and an all-expense paid party. In addition, there were Christmas bonuses for everyone handed out by Santa (who looked suspiciously like the old man himself). About $50,000 was allotted for the party each year.

Unfortunately, this year the profits of the company have taken a serious drop and the budget for the party and bonuses has been drastically reduced to $17,500. As a member of the management entertainment committee it is your job to allocate the available funds and develop a budget to provide the best party you can with the limited resources. Be creative!

Step Four: Gathering Your Resources

Checklist for Success

Next, make sure you have all the information you will need. Make a list of additional sources of information and people who can help you out if you get stuck. We have included a basic checklist below. Feel free to customize it and use it for your next budget!

Human Resources Checklist

ItemTypical Department
 Direct compensation policy, including pay grades, salary ranges, salary caps, and merit increasesHuman Resources
 Indirect compensation policy, including benefits, bonuses, profit sharing, etc.
 Promotion policy
 Any policies on mandated raises, such as cost-of-living increases or union agreements
 Legislation on mandated government payments (tax, insurance, etc.)
 Organizational chart with head count for your departments

Accounting Checklist

ItemTypical Department
 All relevant financial information (historical for three to five years plus current year)Accounting
 Chart of accounts
 Accounting policies
 Capital asset registers
 Templates or tools that they use
 Organizational chart of cost and profit centers with your responsibilities clearly marked

Marketing and Sales Checklist

ItemTypical Department
 Economic forecast for the following yearBudget Management Team
 Strategic plan for the following year
 Information on expected trends, planned events, and other factors that could affect your budget
 Fiscal calendar with important events marked
 Complete budget package
 Policy on budget completion, reviews, monitoring, reporting, and management
 Additional resources and tips

Budget Management Team Checklist

ItemTypical Department
 Economic forecast for the following yearBudget Management Team
 Strategic plan for the following year
 Information on expected trends, planned events, and other factors that could affect your budget
 Fiscal calendar with important events marked
 Complete budget package
 Policy on budget completion, reviews, monitoring, reporting, and management
 Additional resources and tips

Checklist for Your Supervisor Checklist

ItemTypical Department
 Goals for your teamYour Supervisor
 Their expectations of you

Checklist for Your Team

ItemTypical Department
 Their goalsYour Team
 Knowledge, ideas, or experience that will help you
 Any relevant financial information

Step Five: Planning Your Work

Now you can create a detailed plan of what needs to be done, when it is due, and how you’re going to do it. Make sure you leave enough time to let the budget sit for a few days and then to do a thorough review.

Here is a template that you can use.

TaskResources RequiredTarget DateDue DateComplete
     
     
     
     

Step Six: Do It!

Now that the groundwork is in place, you can start working through the budget package. (If you don’t have a budget package, you should still have enough information about what is expected of you to complete the required documents.) Delegate tasks where appropriate, but make sure you maintain final control over decisions. And, always double-check the numbers (even your own!).

Where can you get your numbers from?
Where at all possible, gather historical data and extrapolate it. This means analyzing the data, identifying patterns if they exist, and then applying those lessons to next year’s budget.

Hint

The next best choice is to take relevant historical data and use it in place of actual historical data. For example, let’s say that you need to budget for a computer upgrade next year. Your department has never done one, but a department of similar size did upgrade last year. You can use their information to get a good idea of what your expenses will look like.

If no exact or relevant historical data exists, your next best choice is an expert’s estimate. For the computer example, perhaps your IT department or the computer company can let you know approximately how much the upgrade will cost. Or, find information from industry averages or even competing companies.

You should always be able to find data and information from one or all of these sources. You should never put in a number just for the sake of putting something in that line. That’s a recipe for disaster!

Case Study, Part Three

Background Information

The Christmas Party at ABC Company always was the event of the year. People were still talking about the generosity of management well into the following summer. The company always rented the Windsor Lodge, a private and secluded property equipped with guest rooms, party rooms, exquisite food, and excellent entertainment for the party. Employees were provided with guest rooms, babysitting services, transportation, and an all-expense paid party. In addition, there were Christmas bonuses for everyone handed out by Santa (who looked suspiciously like the old man himself). About $50,000 was allotted for the party each year.

Unfortunately, this year the profits of the company have taken a serious drop and the budget for the party and bonuses has been drastically reduced to $17,500. As a member of the management entertainment committee it is your job to allocate the available funds and develop a budget to provide the best party you can with the limited resources. Be creative!