The process and format of a business budget can vary depending on the size and complexity of the organization. However, the general steps involved in creating a corporate budget typically include the following:
Establishing the budgeting period: The budgeting period can be a fiscal year, a quarter, or any other suitable period. The period should be long enough to provide a meaningful projection of the organization's financial performance. A lot of modern companies also have established a rolling trailing 12-month budget which is considered a more advanced approach.
Gathering financial data: Financial data such as historical financial statements, sales forecasts, and expense reports are gathered to serve as a basis for the budget.
Identifying revenue sources: The organization identifies all the sources of revenue, such as sales, royalties, and interest income.
Estimating expenses: The organization estimates all the expenses it expects to incur during the budget period, such as salaries, rent, utilities, and marketing expenses.
Allocating resources: The organization allocates resources to different departments based on their needs and objectives.
Finalizing the budget: Once all the necessary data has been gathered, the organization finalizes the budget by incorporating all the revenue and expense projections.
The format of a corporate budget typically includes the following statements:
Income statement: The income statement forecasts the organization's revenues, expenses, and profits for the budget period. It provides a snapshot of the organization's financial performance during the period.
Balance sheet: The balance sheet forecasts the organization's assets, liabilities, and equity at the end of the budget period. It provides a snapshot of the organization's financial position at a particular point in time.
Cash flow statement: The cash flow statement forecasts the organization's cash inflows and outflows for the budget period. It provides information on the organization's ability to generate cash and manage its cash flows.
A corporate budget may include several supporting schedules that provide additional detail on the revenue and expense projections, including:
Sales forecast: A sales forecast is an estimate of the revenue that an organization expects to generate during the budget period. It typically includes a detailed breakdown of sales by product or service, customer segment, geography, or other relevant categories.
Cost of goods sold (COGS) forecast: The COGS forecast estimates the direct costs associated with producing the goods or services that the organization sells. This includes raw materials, labour, and other costs directly related to production.
Operating expense budget: The operating expense budget details the expected expenses associated with running the organization. This may include salaries, rent, utilities, marketing expenses, and other general and administrative expenses.
Capital expenditure budget: The capital expenditure budget outlines the expected investments in long-term assets such as property, plant, and equipment (PP&E). This includes new acquisitions, upgrades, and maintenance expenses.
Cash flow forecast: The cash flow forecast estimates the organization's expected cash inflows and outflows during the budget period. This includes cash receipts from sales, payments to vendors, and other operating, investing, and financing activities.
Variance analysis: A variance analysis compares the actual results to the budgeted figures and identifies the reasons for any variances. This helps the organization to adjust its plans and take corrective actions where necessary.
In addition to these statements, the budget may also include other supporting schedules and analyses that provide further detail on the revenue and expense projections. Overall, the corporate budget is a crucial tool for financial planning and analysis, and it is essential to follow a structured process and format to ensure that it provides an accurate and meaningful projection of the organization's financial performance.
