Everything you need to know about budgeting Planning

Posted on Jul 13, 2023 at 11:07 PM

The budgeting planning concept is one of the most crucial processes undertaken by corporate finance departments to manage and control financial resources. It includes defining financial objectives and allocating funds to each section according to its needs.

Budgeting planning requires an accurate understanding and analysis of the revenue and expenditure the company expects to happen. There are several ways to discuss this below.

As well as the benefits of budgeting planning and how to apply it.

Why is budgeting important?

• Budgeting planning has a large number of benefits, the most significant of which may be:

• Manage the company's financial resources more.

• Managing and developing the decision-making process within the organisation or organisation.

• Managing the appropriate financial resources for each project without creating expenses that do not benefit the project budgeting.

• Achieve a higher morale and motivation of employees, leading to a more efficient performance in the company.

Budgeting planning can predict problems and risks before they occur, hence the possibility of avoiding these problems; for example, a company may need more funding. Then it is possible to undertake new funding rounds to raise the required amount.

What are the most crucial types of budgeting?

Different budgeting types or models to develop an appropriate action plan and achieve the organisation's financial and operational objectives. The following is a brief overview of these types:

• Main budgeting:

The first type of budgeting collects the budgeting of all departments within the organisation. It uses senior management to plan the company's activities and business and to shape the composition of the final general budgeting.

• Operating budgeting:

This budgeting shows the amount of disbursement and net income likely to occur in the company during a given time. It helps to verify the continuity of implementing the financial plan items.

• Cash flow budgeting:

Cash budgeting allows estimating funds in and out of business during a given time (monthly, semi-annual, annual). It helps to assess the company's financial liquidity, level of financial planning and analysis.

• Financial budgeting:

Money budgeting gives an idea of the capital the company may need in its business and identifies the company's short- and long-term financing needs.

• Work budgeting:

This type of budgeting relates to planning the required workforce within the company. It aims to achieve the goals and future visions of the company. It also helps you allocate all employees' expenses (workers and management).

• Fixed budgeting:

Designated as an estimate of income and expenditure that remains constant throughout the year, this budgeting meets regardless of whether sales increase or decrease, the fixed budgeting established by some educational institutions is a good example, covering all its activities during the year, not exceeding the established amount framework.

How is the budgeting planned?

The creation and formulation of budgeting, and its management and control, are crucial in the company's strategic financial planning. The main aim of budgeting is to divide resources in the company to each department as needed so that the company's operations remain successful and profitable.

Preparing the budgeting is simple, but it is not easy either. You can rely on the following budgeting planning methods to ensure productive budgeting and planning:

1. You can start asking the following questions:

How many sales to expect within the budgeting time limit? When you answer this question, it's crucial to be realistic and not be a fantasy! The wrong answer may cause serious budgeting problems in the future.

What are the direct (variable) costs of sales? These costs include raw material, production, and in-house and outsourced staff costs.

What are indirect (fixed) costs or overhead: The most significant costs to consider in budgeting planning include:

• The company's facilities and buildings, whether owned, leased, or taxed by the company, and the costs of facilities such as lighting, heating, etc.

• Operating costs of equipment the company owns, such as cars and machinery used in production.

• Promotion expenses of products and services provided by the company.

• The cost of the company's proven employees (e.g. insurance, future retirement plans, etc.).

• Cost of office and postal supplies.

• Travel costs (if necessary).

Remember that you can break down the types of expenses depending on your need and how well the budgeting planning you seek to create in the entire project.

2. Divide the right time, and start planning an accurate budget:

Budgeting and savings management take the realistic time it needs. As in management science, a good planning day takes the strain of a whole month away. 

Moreover, past years' numbers and data will help estimate the volume of sales you may make this year and remember to consider changes in the market.

3. Actual budgeting planning:

Now that fixed and variable total costs to determine. Set your budgeting for overheads in the company, and remember that sales forecasting helps define your variable expenses.

4. Ensuring adequate data:

Not only is budgeting planning enough, but at the final stage, you must ensure that the information and data in the budgeting are comprehensive and enough. Remember to use accounting software to manage all your business funds within your company.

You can ask the most experienced staff about the expected sales volume or budgeting system and their feedback, and sometimes you may have to buy consultation from experts about your budgeting preparation process.

5. Evaluation of the budgeting:

When you make a budget that you must adhere to as much as possible, it is necessary to review it. 

Remember that including performance measurement indicators help you in the evaluation process. If one is different, you can find out what to do immediately.

You can rely on a budgeting planning book (weekly, monthly, or annual), an added value that can help you with the evaluation process.

In conclusion, 

Budgeting planning is an indispensable tool for organising and preparing the financial process within organisations, through which individuals, companies, and institutions can make the best financial decisions, avoid problems and achieve long-term financial sustainability.