Creating and sticking to a budget can be a challenging task. In addition the
pressure to do more with less is being felt in most organizations. Here are some
pointers to remember when setting up a budget for your company.
"The purpose of a budget is to draw up a plan of future activities of the company
expressed in financial or monetary terms,' says finance specialist, Carel Spies.
A budget must be presented in the format of the official financial statements of a
company such as the income statement and balance sheet.
"An organizational budget is a proposed plan of how the business is going
to fair in the coming financial year. Once the budget is accepted by the
shareholder or owners of the business it becomes a target for future financial
Elements such as sales, assets, equity and liabilities need to be taken into
account when compiling the budget.
One of the biggest mistakes is a lack of forethought and planning.
Other problems can arise from inaccurate or unrealistic assumptions about costs
or profits. When the business experiences a lower profit margin than expected
the company?s cash flow requirements come under pressure.
In any scenario the principles of budgeting remain the same. "When you
budget for an event you have to plan all the activities carefully and ensure your
assumptions regarding quantities and prices are well researched and will make
financial sense when compared to actual expenses once the event happens.'
"If an event is expected to bring in an income or sales then one must assess
the corresponding costs and expenses to ascertain the feasibility of the
Overspending is an error common to budgeting. "It is important to compare
your actual expenditure carefully against your proposed budget .to avoid
Calculating your actual expense before time allows you to explore more
Creating an accurate budget requires spending as much as 80% of your time on
preparation and planning.
"Make sure the assumptions are well thought through and
A manager or business owner stands the most to gain or lose from the
budgeting process. Therefore management needs to possess an intimate
knowledge of the budget.
By Cindy Payle - Portal Publishing