You have a budgeting process
The budgeting process underpins the business plan that is derived from the strategic direction established for the business. It determines the provisional profit and cash figures together with departmental and project spending plans. When these are agreed with senior managers/owners they become firm commitments
Key Issues
·         Your marketing and sales team should establish your five year sales forecast
·         Your sales forecast should be broken down into product line sales and territories
·         Your manufacturing and supplies team provide information on manufacturing costs based upon the marketing forecasts
·         Your product introduction team provides a budget for new product development including generic technologies
·         Major items of capital expenditure should be identified and justified
·         The finance team should have the responsibility for ensuring that the financial budget is stated accurately and costs can be justified, with the financial risks and returns clearly indentified using accepted assessment tools/models
·         Your accounts team should compile the figures into series of standard financial formats
·         Setting, agreeing and controlling your budget is the job of business managers. Your finance manager should provide the financial framework and options for the business to meet its commitments to the directors, owners, and/or banks
·         The financial budgeting process involves the following:
o      Items of expenditure, quantities, timing and other financial aspects to be included in the budget should be determined by the managers responsible
o      These requirements should be translated into financial statements and budgets that are used to monitor and control expenditure
o      Proposals should be presented to senior management for their agreement/approval which will depend on the attractiveness of the opportunity identified.
o      Once the budget is agreed, an appropriate manager should take responsibility for monitoring and controlling expenditure against this budget
·         Your finance team should provide weekly and monthly reports that show performance against budget, against previous year and future projections.
·         Monthly board meetings should review the current month and year to date performance against budget, noting good performance and addressing potential risks
·         If profits and cash are behind forecast, the manager responsible for the shortfall in performance should introduce a recovery plan to bring the business back on track
Factors for Success      
Factors to  Avoid
1.     Your budgets are achievable but challenging for your management team
2.     Your financial information is
-   correct
-  accurately represents your financial position
-   meaningful and readily available
1.     Setting budgets that managers don’t believe they can achieve
2.     Arbitrarily changing and imposing budgets
3.     Setting challenging budgets without the necessary action/investment plans
Who does this apply to?
Senior management team
Realisable Benefits
A business with controlled expenditure which meets the agreed business plan


Factors affecting financial performanceFactors affecting financial performance

Factors affecting financial performance

Cash flowCash flow

Cash flow

Determining the cost of productionDetermining the cost of production

Determining the cost of production

Justifying the make versus buy decisionJustifying the make versus buy decision

Justifying the make versus buy decision

Justifying capital expenditure decisionsJustifying capital expenditure decisions

Justifying capital expenditure decisions

Managing debtorsManaging debtors

Managing debtors

Managing creditorsManaging creditors

Managing creditors



Providing management informationProviding management information

Providing management information