Step-by-Step Instruction to a Business Budget


Budgeting provides business owners with a tool to plan their continuing operation and to measure performance. A completed budget tells a financial story about what the business owner expects to happen during the period budgeted. The budget process intimidates many business owners. Knowing how to create a budget eliminates much of the stress associated with creating a budget and ensures that the budget includes all relevant information.

Gather Data

Gather all relevant information before beginning the budgeting process. First, print actual sales reports for the current year. Then print expense reports and budget reports for the current year, separated by department. Run detailed transactions reports for any expense accounts that include a large amount of activity. Gather any documentation from the previous budget process, if available. Separate all of the data into separate folders labeled with each department manager’s name.

Meet With Department Managers

Schedule meetings with each department manager, allowing each manager time to prepare for the meeting. Prior to the meeting, make a copy for the department manager of all the data you’ve gathered. If you are meeting with a sales manager, review the actual sales and compare them with the budgeted sales. Discuss reasons for lower-than-expected sales, variations in product mix and opportunities for the upcoming budget period. Determine reasonable sales quantities and selling prices for the coming year. If you are meeting with an operations manager, review the current year’s expenses and compare them with the budgeted amounts. Discuss the reasons for any variances between the budgeted and actual numbers. Review any additional documentation and determine a reasonable budget amount for the coming year.

Compile Final Data

After meeting with each manager, gather all of the final numbers together from each department. Using the electronic file from the previous budget period, update the heading to identify the new budget period. Revise the numbers listed for each expense to reflect the amounts agreed upon with each manager, and include new accounts or line items for expenses that arose during the current year.

Create Budget Reports

Create a budget report detailing the sales or expenses, by department, for the budget period. Then create summarized budget reports to reflect the sales and expenses in total, rather than by department; this report helps management project the expected profits for the budget period. Distribute copies of the completed budget reports to each department manager and to senior management.

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