Budgeting Effectively – Putting #s to Paper

Part 2 of a 5 Part Series on Budgeting and Finance for the Non-Financial Manager

Budgeting Effectively The chart to the right illustrates the typical Company’s Master Budget process. Companies usually determine sales projections then determine the production costs associated with achieving their sales goals. The Administrative Expense bucket shown on the chart is comprised of all the individual overhead departments such as HR, Legal, Finance, Facilities, IT, etc., and are associated with the operation of the company, not the actual selling or production of your company’s products. These budgeting template Excel spreadsheets and instructions will help you capture costs to create your Operating Expense Budget for both Non-Profit and For-Profit companies:

In my 1st budgeting blog post, Understanding Accounting Basics (before assigning #s), I mentioned accrual-based accounting. When compiling costs in the spreadsheets, this comes in to play, as you’ll need to account for costs in the month you receive the service (regardless of when you pay for it). As an example, if you pay $25k/mo for Workers’ Comp for your employees, your finance dept will accrue for the charge each month regardless of when the invoice is paid. It’s the same on the revenue side of the house – the revenue exists when you invoice the client even if it takes 60 days to collect the money.

Prepaid expenses are another example of accrual-based accounting. If you prepay a contract 6 months in advance, Finance will book the total paid in a Prepaid Expense account then accrue the pro-rated amount (total $/6 mos) to your department’s budget each month. When compiling your budget, you merely list the monthly expense. That said, you need to communicate to finance the upcoming prepayment for cash flow projections.

To determine your department’s expenses, look at past expenditures and anticipated future activities that will result in expenses to your department. Examples include potential mergers and acquisitions, information gleaned from labor market reports, etc. In addition, as part of your budgeting due diligence, you should interview senior leaders and department heads to determine new initiatives that may affect your budget.

Next week: Let the negotiations begin! We’ll discuss how to bullet proof your budget and prepare for your presentation to the C-Suite.

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