Budget Preparation Guide | Finance Reference

Budget preparation is a common affair in most established companies. Most of the times, the?preparation procedures and formats are most of the time?inherited from the predecessors.?Giving short time and tight deadline?are very common.? Most people who are involved in the budget,?were always?too?engross to?rush?and meet the deadline.

How many people involved really understand the full budget preparation process???I have been preparing budgeting for the?last 10 years of my working career. I?realised that many of the?people?who are involved in budgeting, that I met, don?t really?have?a proper training?or knowledge of?the?full budget preparation process.

Therefore, I prepared this?guide with an objective to?give a better understanding?of the budgeting process. This?guide is based on real practice and may differs from organization to organization.

Budget Preparation Guide:

Budget templates and schedules may differs from?organization to organization.

However, most master budgets have two major common components such as the operating budget and the financial budget. From my experience, it is pertinent to have?first two years prepared in monthly format and the next three or whatever years in yearly format.

1. Operating budget consists of the following components :

? a. Sales/revenues budget provides the various sources of revenue lines and how they would be achieved.

? b.?Cost of sales/direct cost budget provides the associated cost directly linked to the various revenue lines.? The difference between the sales/revenues budget and cost of sales/direct cost is the Gross Profit Margin.

? c.?Operating expenses budget provides the details of the indirect operating cost such staff salary, office rental, printing and stationery, telephone expense and etc.

Such expenses normally will be incurred regardless whether there are sales/revenues.

? d.?Advertising?& promotion budget provides the various plans of how the organization is going to promote its business. Example would be the advertisement cost, product promotion cost and etc.

The overall operating budget?basically?provides?a?full picture?of the business?operation and its bottom line.

2. Financial budget consists of the following components:

a. Capital budget provides the details of the capital expenditures such as office renovation, hardware investment cost and etc.

b.? Income from operations budget is the end result (bottom line or profitability) of the above operating budget.?It can be a?cash?deficit or contribution from the operating activities.

c.? Cashflow budget provides the funding requirements of the business operations. It consist of the following components:

i. Cash generated/used in operating activities.

? ii. Cash from/used in investment activities.

? iii.? Cash from funding activities.

The financial budget focuses on the financial aspects of the business. It would tell?whether the business is?cash self sustaining or requires external cash funding from else where.

Click here for a powerpoint presentation slides to get a better understanding?of the above.

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