How to Conduct Budgeting for your Business

Budgeting is a critical pillar for businesses of all sizes and types. Its impact is tremendous and cannot be overemphasized. It helps the managers of businesses in planning the expected revenue, expenses, and investment amount required to achieve the business’s financial goals and grow expectedly.


Why budgeting is important?

  1. Financial planning and control: budgeting helps businesses have a clear sense of future revenue and expenses. This helps in having a clear understanding of future financial performance. Budgeting also helps identify the areas with a pressing need for funds thus ensuring the efficient use of scarce resources. When companies have a budget, it is precious because they can benchmark their performance at the end of a financial year or period and see if they surpassed or fell short of their planned target.
  2. Strategic decision-making: Having a budget also helps managers decide on the amount of capital to be raised, whether it is time to cut costs or expand. It also helps identify potential challenges and financial constraints and helps managers plan and put necessary mitigants in place.
  3. Setting clear business goals: Budgets help set clear financial and operational
    goals for businesses. These clear targets help motivate management, employees and give a sense of accountability, and focus on achieving business goals.


Steps to take in Building a budget

  1. Determine business goals and objectives: Understand the business’s short, and long-term goals. Majorly revenue, cost reduction, or expansion goals
  1. Historical performance: Analyze the business’s past financial performance to
    understand the trend. The forecast budget is most likely expected to follow the historical performance pattern except new strategies are implemented to
    increase prices, negotiate discounts with suppliers, or bring in new technologies into the business.
  1. Forecast revenue and expenses: estimate future sales based on historical
    performance, planned business strategy, and economic conditions. Having an
    optimistic, base, and pessimistic position will be very useful.
    Expenses can be categorized into fixed, and variable. It will be important to ensure all costs are captured.
  1. Create the budget: create a detailed budget that shows the breakdown of revenue, expenses, and all profits across business segments, units, geography, or any relevant category.
  1. Review and implement: after creating the budget, present it to the senior
    management or board of directors and implement any feedback they provide.
    Once approved, communicate the targets to the relevant departments and
    monitor performance regularly.


Conclusion

For effective budgeting, setting realistic goals and getting inputs from key stakeholders and departments is important as it gives a sense of ownership and accountability to the stakeholders once the numbers are finalized.

Budgeting is a strategic tool that drives business success by providing a clear roadmap for financial planning, resource allocation, and performance monitoring


Communications and PR Analyst at Leonine Investment Services Limited | + posts

Abdulsamod Balogun leads Communications and Public Relations at Leonine Investment Services Limited. He's excited about new media, technology and public policy. When he's not working, he's catching up on movies and books.

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