Budgeting is the most important part of financial management of an organization. Only if you know how much cash and assets will be required on the next year will you be able to make a good budget and your company will become better at managing its resources. This is the basic difference between well managed and poor performing companies: the well managed companies know when and how much cash they will need at which point in time (Donovan, 2005).
Therefore to make an effective and well thought out budget, you should start thinking and planning at least two or three months before your start of the fiscal year. This is especially necessary if your company depends on other companies to function, like nonprofit organizations asking for some support from the government should provide their expected budget before the government makes their budget as it will be difficult for the government to give the organization anything after it’s allocated all its money already.
The first step in the budget process is always to look back and see how the last budgeting went. This means comparing your budget amounts to the amounts the organization actually spent on everything in question. It includes the number
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Once the organization has allocated its human resources and made its goals for the year, it should carefully consider the material and other overhead production costs which will occur with the goals set in place. Naturally, if an organization has made a goal to increase its production for the year, it has to allocate more on raw material and labor, otherwise it will not be a well thought out and realistic budget. Deep thinking should always play a vital role in this process as inflation and other key areas may increase the organization’s expenditure during the year and may cause it to make an under applied budget in which case it will face a huge cash shortage in the end of term when it might need it the most (Meyers, 1996).
Finally, the organization should carefully estimate its sales figures over the year. This is particularly helpful as then the organization can save a lot of money when sales will be high for a particular month. For example an organization which makes swim wear will keep its cash requirements for months from April to July relatively low as compared to November and December as in the middle of the year, they will generate more revenue and will not have to take out any invested cash. This matching of the revenue and sales to the required amount of cash will be the key for producing a good budget. If this is managed properly, the organization can never become financially challenged.
As an HR executive, I will make sure that everyone knows their job during the period for which the budget is being developed. In an organization, everyone works as a team, therefore everyone should know about the deadlines of their co-worker on whom they are dependent. For example, if someone is working in the sales department, they need to know the product’s target segment and scope from the marketing department before he can make any estimates about the product’s sales. This interdependency forces the organization to keep everyone important and relevant to the tasks due to be performed up to date with the timeline.
The most effective method of communication for spreading this type of news is a meeting. Call in everyone concerned for a meeting. This type of meeting is usually called an annual general meeting. This is where all the top management of the organization sits and discusses the performance and challenges of the company. It is also where the budget is finalized. Therefore, when the managers reach to work next day, they can inform their teams about everything that was decided in the meeting and how things will go on this year.
As discussed in the paper, budgeting is the most important financial forecasting an organization can make to survive in the world today. The timeline to be created to make a financial budget is probably the most crucial part of the budget. Employees need to know about the areas where they are accountable for and hence they need to give accurate and reliable information to help develop the budget.
Alliance for Nonprofit Management (2004). How do we prepare a budget? Retrieved March 21st, 2009 from http://www.allianceonline.org/FAQ/financial_management/how_do_we_prepare_budget.faq
Donovan, S. (2005). Budgeting. Lerner Publications
Meyers, R. T. (1996). Strategic Budgeting. University of Michigan Press
Personal Money Management Budget (2008). Steps in Budgeting Process. Retrieved March 21, 2009 from http://www.personalmoneymanagementbudget.com/steps_in_budgeting_process.html