In order to survive and grow, it is important for any business to control its costs and increase its revenue. It is essential to monitor the performance of different departments. Many organizations prefer to develop a comprehensive budget at the beginning of the year. Budget can be used as a standard for measuring performance as well as for identifying significant deviations from planned expenditures and expected sales revenue.
A separate budget can also be prepared for each department depending on the size and structure of the organization. While some organizations may prefer to develop a budget based on historical figures, other organizations may prefer to develop a budget on the basis of expectations for the future. Like for any other financial year, it is essential for a business to create a budget for the year 2012.
Five Important Steps in Creation of a Budget for the year 2012
Study Current Market Scenario
It is important for any business to study the current market scenario. Factors such as expected changes in government policies having a direct impact on company’s business, inflation, interest rates and so on should be considered at the time of starting the process for budget preparation.
It is important for the company’s management to conduct meetings with the heads of different departments. Departmental heads play a critical role in the development of a comprehensive budget.
Project Sales Revenue
It is important to project the value of sales for the year 2012 on the basis of current economic conditions and expected orders from customers. It is appropriate to project sales for each quarter and calculate total sales value for the entire year. Sales value can also be calculated for each line of business. For Instance, if a company is providing consulting services in information technology and finance, it can develop a separate sales budget for each line of service.
Just like sales revenue, it is important for the company to estimate the value of business expenditures for the year 2012. Properly planned expenditures can help the company in increasing its profitability. Factors such as increase/decrease in the cost of raw material, transportation, employee salaries and so on should be taken into consideration while estimating the expenditures. If a company is planning to expand its operations, it is essential to estimate the associated revenue and capital expenditures.
Ultimate objective of any business is to earn profits and maximize shareholder’s wealth. Therefore, it becomes important to estimate the profitability for the year 2012 after deducting all projected expenditures from the value of projected sales revenue. A budget is only an estimate. Therefore, it becomes important to adjust the values incorporated in the budget for any changes in internal and external business environment.
For Instance, an unexpected rise in employee attrition level can result in a significant rise in business costs. These costs may not have been projected at the time of preparing the budget. Therefore, relevant changes may be required in the value of estimated expenditures to account for unexpected increase in business costs.
Photo Credit: http://www.golfonline.sk/rozpocet-golfoveho-ihriska.html
Photo Credit: http://a.ardano.com/tempo-di-imposta-puo-significare-grande-risparmio-per-le-piccole-imprese