Budgets and Managing Money

Quick Reference Guide customizable courseware

The Budgeting Process

Finding Facts and Figures Gathering a Budget Package

Where at all possible, gather historical data and  Company-wide budget and goals
extrapolate it. This means analyzing the data,  Description of your department and its goals as laid out in
identifying patterns if they exist, and then applying the strategic plan
those lessons to next year’s budget.  Business or performance indicators
 Past financial statements and budgets
For example, let’s say your office supplies expenses  List of accounts and profit and cost centers involved
have increased by $500 each year for the past three  Proposed budget, if there is one
years. To arrive at a reasonable budget number,  Allocated budget amount, if there is one (Sometimes you
take last year’s expenses and add $500. Or, let’s are given a pot of money to budget; at other times you
say that your marketing budget is always 25% of need to determine what you need and then fight for it!)
your sales revenue. Take the estimated sales  Templates for completing the budget
revenue and calculate the percentage.
Where Do I Fit In?
The next best choice is to take relevant historical
data and use it in place of actual historical
data. For example, let’s say that you need to
budget for a computer upgrade next year. Your
department has never done one, but a department
of similar size did upgrade last year. You can use
their information to get a good idea of what your
expenses will look like.

If no exact or relevant historical data exists, your

next best choice is an expert’s estimate. For the
computer example, perhaps your IT department or
the computer company can let you know
approximately how much the upgrade will cost. Or,
find information from industry averages or even
competing companies.

You should always be able to find data and

information from one or all of these sources. You Each plan should have five key parts: the numbers, the story
should never put in a number just for the sake of behind the numbers, releveant industry statistics and company
putting something in that line. That’s a recipe for ratios, and indicators of success and failure (so that you can
disaster! easily identify how reality compares with the plan).

© 2005-2011 Velsoft Training Materials Inc. All rights reserved.

Types of Budgets Common Ratios
 Capital budget: Plan to acquire fixed assets to Current Ratio
support the operations of a business.
 Cash budget: Highlights the flow of cash
throughout the year to pinpoint shortages and
excesses.
Quick Ratio
 Expense budget: Outlines expenses for a
particular department.
 Fund budgets: Where an amount of money is
allotted to a general item (such as hospital
improvement, for example) by law or executive Debt Ratio
decision, with no clear idea on how it will be
spent.
 Labor budget: Lists all employees and the
salary or wages budgeted for each position. Gross Profit Margin
 Line-item budget: A list of specific items that
will be evaluated one by one.
 Production or manufacturing budget: Takes
the sales budget and its estimate of quantities
of units to be sold and translates these figures Net Profit Margin
into the cost of labor, materials, and other
expenses required to produce them.
 Sales budget: Where expenses and sales are
plotted out in dollars. Return on Sales Ratio
 Variable budget: Where expenses are plotted
out as a percentage of sales.

Top Ten Excuses for Being Debt to Net Worth Ratio

Over Budget
1. The accounting reports must be wrong.
Cash Turnover Ratio
2. Didn’t you get my revised budget?
3. How was I supposed to know that it would
(insert your own excuse here) this year?
4. You’re not going to quibble over a measly
couple of million dollars, are you?
5. Don’t worry; we’ll make it up next year. Collection Ratio
6. My assistant worked up that budget – s/he
must have messed up.
7. It’s an investment in our future.
8. (Insert name of another manager here)’s
Investment Turnover
department didn’t come through with the
support that I was promised.
9. We’re doing better than last year!
10. Well, two years out of three isn’t bad, is it?

Five Tips for Getting Your Budgeting Terms

Budget Approved
 Know what to expect: Get as much  A budget is an operating plan that outlines projected
information about the presentation as you can. revenue and expenses for a particular period of time.
 Make sure you provide what they expect.  A projection is a prediction for the future, based on past
 Be prepared: Have a well-organized notebook data, extrapolation, and summarizing key factors.
or electronic document handy with all the  Forecasting is the process of putting together several
supporting information projections to create a projection for the future. (Think of a
 Stay calm: Pause frequently and ask for weather forecast.)
questions.  Extrapolation is the process of applying past data to the
 Do a mock presentation: Find someone that future to arrive at a reasonable projection.
you trust to give you constructive criticism.

© 2005-2011 Velsoft Training Materials Inc. All rights reserved.