business planning and budgeting process

Planning, budgeting and forecasting is typically a three-step process for determining and mapping out an organization’s short- and long-term financial goals.

• Planning  provides a framework for a business’ financial objectives — typically for the next three to five years.
• Budgeting  details how the plan will be carried out month to month and covers items such as revenue, expenses, potential cash flow and debt reduction. Traditionally, a company will designate a fiscal year and create a budget for the year. It may adjust the budget depending on actual revenues or compare actual financial statements to determine how close they are to meeting or exceeding the budget.
• Forecasting  takes historical data and current market conditions and then makes predictions as to how much revenue an organization can expect to bring in over the next few months or years. Forecasts are usually adjusted as new information becomes available. 

The process is usually managed by a chief financial officer (CFO) and the finance department. However, the definition can be expanded to include all areas of organizational planning including: financial planning and analysis , supply chain planning , sales planning , workforce planning and marketing planning .

Discover the power of integrating a data lakehouse strategy into your data architecture, including enhancements to scale AI and cost optimization opportunities.

Register for the ebook on generative AI

Basic business accounting practices date as far back as the 1400s, when Venetian investors kept track of their Asian trade expeditions using double-entry bookkeeping, income statements and balance sheets. The word “budget” is from the old French word “bougette,” meaning “small purse.” The British government began to use the phrase “open the budget” in the mid-1700s, when the chancellor presented the annual financial statements. Businesses began to regularly use the term “budget” for their finances by the late 1800s.

Modern business forecasting began in response to the economic devastation of the Great Depression of the 1930s. New types of statistics and statistical analyses were developed that could help business better predict the future. Consulting firms emerged to help companies use these new prediction tools.

Accounting and forecasting were difficult in the early 20th century because they depended on laborious hand-written equations, ledgers and spreadsheets. The emergence of mainframe computers in the 1960s and personal computers in the 1980s sped up the process. Software applications such as Microsoft Excel became widely popular for financial reporting. However, Excel programs and spreadsheets were prone to input errors and cumbersome when various departments or individuals needed to collaborate on a report.

By the start of the 2000s, companies gained access to ever-growing operational data sources, as well as information outside corporate transaction systems — such as weather, social sentiment and econometric data. The vast amounts of available data for forecasting created a need for more sophisticated software tools to process it.

Numerous planning software packages emerged to handle this data complexity, making planning, budgeting and forecasting faster and easier — both for processing and collaboration. With predictive insights drawn automatically from data, companies could identify evolving trends and guide decision making with foresight, not just hindsight.

Today, cloud-based systems are becoming the standard, providing more flexibility, security and cost savings — helping organizations generate accurate predictions and budgets with fewer errors.

But despite these advancements, businesses are still quite dependent on traditional spreadsheets. 1   Seventy percent of businesses say they rely heavily on spreadsheet reporting, with only 16 percent using on-premise specialist software — and only ten percent using cloud software for planning.

Many businesses still base their strategy on annual plans and budgets, which is a management technique developed over a century ago. But in today’s more competitive environment, organizations are realizing that plans, budgets and forecasts need to reflect current reality — not the reality of two, three or more quarters ago. Continuous planning and rolling forecasts are becoming widely used methodologies to update plans, budgets and forecasts frequently throughout the year, on a quarterly or even monthly basis. These approaches help managers spot trends before their competitors — helping them make better informed, more agile decisions about pricing, product mix, capital allocations and even staffing levels.

Creating and implementing a sound planning, budgeting and forecasting process helps organizations establish more accurate financial report and analytics — potentially leading to more accurate forecasting and ultimately revenue growth. Its importance is even more relevant in today’s business environment where disruptive competitors are entering even the most tradition-bound industries.

When companies embrace data and analytics in conjunction with well-established planning and forecasting best practices, they enhance strategic decision making and can be rewarded with more accurate plans and more timely forecasts. Overall, these tools and practices can save time, reduce errors, promote collaboration and foster a more disciplined management culture that delivers a true competitive advantage.

Specifically, companies are able to:

• Quickly update plans and forecasts in response to new threats and opportunities, identifying risk areas early enough to rectify issues before they are serious.
• Identify and analyze the impact of changes as they occur.
• Strengthen the links between operational and financial plans.
• Better plan and predict cash flows.
• Improve communication and collaboration among plan contributors.
• Consistently deliver timely, reliable plans and forecasts, plus contingency plans, for a range of possible events.
• Analyze variances and deviations from plans and promptly take corrective action.
• Create a budget specifically for growth and having confidence in how much can be spent.
• More accurately manage sales pipelines while tracking performance against targets.
• Make more confident strategic decisions based on hard data, instead of hopes or guesswork.
• Provide evidence of an organization’s future trajectory to potential investors and lending institutions based on multiple data sources and sophisticated analysis.

Budgeting, planning and forecasting software can be purchased as an off-the-shelf solution or as part of a larger integrated corporate performance management (CPM) solution.

Advanced software solutions enable organizations to:

• Measure and monitor performance through interactive, self-service dashboards and visualizations.
• Examine root-causes with high-fidelity analysis of dimensionally rich data.
• Evaluate trends and make predictions automatically from internal or external data.
• Perform rapid what-if scenario modelling and create timely, reliable plans and forecasts.

Planning is easier and more effective when practitioners follow well-established best practices. Software solutions that support these practices can enhance the timeliness and reliability of information and increase participation by key people throughout the organization; especially those at the front lines.

Leading companies have moved to solutions that address the full planning cycle — data collection, modeling, analytics and reporting — on a common planning platform with lean infrastructure requirements. Such platforms can handle a diverse range of business functions, from budget-focused finance tasks to, for example, supply chain-focused planning for retail environments with thousands of SKUs (stock keeping units).

Companies like IBM offer holistic, integrated software solutions to streamline the planning, budgeting and forecasting process. The logic is that to adapt to today's quickly changing business conditions, an organization needs one solution that creates a single source of truth and visibility into all its data. These solutions can extend well beyond the financial aspects of the business, becoming a powerful forecasting engine across the enterprise. With these agile planning and exploratory analytics software solutions — whether in the cloud or on-premises — companies can perform planning, budgeting and forecasting with greater speed, agility and foresight.

Evaluating and selecting planning, budgeting and forecasting software is a complex task. It requires careful consideration of the software’s functionality, its value to the planning process and its ability to support planning best practices. There are also factors such as vendor reliability and support, user community connections and commitment to customer success once the sale is complete.

IBM Analytics  recently published a guide to help organizations evaluate planning, budgeting and forecasting software — identifying key qualities to look for:

• Adaptive . Can you rapidly change models and re-forecast frequently, based on input from business units? Can you update plans as often as necessary?
• Timely . Is your information always current because users contribute directly to a central planning database? Are your consolidations and rollups done automatically to easily meet deadlines?
• Integrated . Do your planning, analysis, workflow and reporting functions reside on one common platform, reducing the need to maintain “shadow” planning systems?
• Collaborative . Is your solution web-based? Does it enable participation anytime, from anywhere with a secure connection?
• Self-service . Are users able to access data and perform complex analysis without the assistance of IT? Are you able to use a familiar spreadsheet interface for faster user adoption and accelerate time to value?
• Enterprise-scale data capacity . Is your solution capable of handling very large data volumes without limiting cube size? Some solutions do not handle “data sparsity” well — forcing data to be split into multiple cubes for analysis, causing version control issues.
• Efficient . Are your managers able to spend less time managing data and more time managing the business?
• Relevant . Do you have the ability to customize views for different user roles, to help increase adoption and process ownership? Do you have formula capabilities that enable modeling of all relevant business drivers?
• Accurate . Do your plans contain errors because of broken links, stale data, improper rollups and missing components?

The key is not just evaluating product features and capabilities, but also evaluating how those features will be implemented by different users within the organization. It’s important to test any planning solution that will be used by a large variety of stakeholders such as finance, operations, HR and sales.

Discover how one of the largest operators of parking facilities in the Middle East used IBM Planning Analytics to deliver better automation and multidimensional analytical power along with cost advantages.

Learn how the real estate developer enhanced its core planning, forecasting and project management capabilities with IBM technology to drive even greater profitability.

Find out how the company used IBM planning analytics to provide monthly and weekly reporting for engineering, marketing, sales and operations.

IBM Planning Analytics provides a single solution to automate planning, budgeting and forecasting for your enterprise.

Gain the autonomy you crave to find, explore and share insights in the governed, trusted environment you need, with IBM Cognos Analytics.

A comprehensive solution that provides power and flexibility for streamlined, best-practice financial consolidation and reporting.

Transform your marketing organization across people, process and platforms to remove complexity, unlock efficiency, and drive growth.

Learn how companies are delivering dependable business forecasts and optimizing the allocation of resources.

Learn the five common drawbacks to spreadsheets as planning tools

Discover the benefits of embracing data and analytics in conjunction with well-established planning and forecasting best practices.

See how you can synthesize information, uncover trends and deliver insights to improve decision making throughout the enterprise.

Request a live, 10-minute demo and get hands-on experience with IBM Planning Analytics by building a revenue plan.

See how headcount planning is done with IBM Planning Analytics in a quick, click-through demo.

Predict outcomes with flexible AI-infused forecasting and analyze what-if scenarios in real-time. IBM Planning Analytics is an integrated business planning solution that turns raw data into actionable insights. Deploy as you need, on-premises or on cloud.

1 The Future of Planning, Budgeting and Forecasting Global Survey, Workday and FSN, 2017  (link resides outside ibm.com)

Please note that the contents of this site are not being updated since October 1, 2023.

As of October 2, 2023, Acclr Business Information Services (Info entrepreneurs) will be delivered directly by CED’s Business Information Services . To find out more about CCMM’s other Acclr services, please visit this page: Acclr – Business Services | CCMM.

• Advice and guidance
• Starting a business
• Personalized Guidance
• Seminars on Business Opportunities
• Certification of Export Documents
• Market Studies
• Export Financing
• International Trade Training
• Connection with the World Bank
• Trade Missions
• SME Passport
• Export Resources
• Import Resources
• Networking Activities
• Networking Training
• CCMM Member Directory
• Market Studies and Research Services
• Business plan
• Registration and legal structures
• Guidance for Drafting a Business Plan
• Help in Seeking Funding
• News, Grants, and Competitions
• Funding Meet-and-Greet
• Resources for Drafting a Business Plan
• Regulations / Permits / Licences
• Personalized Market Information Research
• Personalized Meetings with Guest Experts
• Government Subsidies and Programs
• Training for your employees
• Employee Management
• Interconnection Program
• Wage Subsidies
• French courses
• Merchant-Student Pairing
• Intellectual property
• Marketing and sales
• Operations management
• Hiring and managing human resources
• Growth and innovation
• Importing and exporting
• Calls for tenders
• Support organizations
• Sale / Closure / Bankruptcy
• Business intelligence
• Business lists and profiles
• Market data
• Market trends
• Business advice
• Business plan management consultant
• Legal structures consultant
• Accounting consultant
• Legal consultant
• Export certification
• Resource centre

Budgeting and business planning

Once your business is operational, it's essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business - and its finances - on track.

This guide outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business' financial position more effectively and ensure your plans are practical.

Planning for business success

The benefits, what to include in your annual plan, a typical business planning cycle, budgets and business planning, benefits of a business budget, creating a budget, key steps in drawing up a budget, what your budget should cover, what your budget will need to include, use your budget to measure performance, review your budget regularly.

When you're running a business, it's easy to get bogged down in day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance.

Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment.

In fact, even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cashflow and profit.

Converting this into a cohesive process to manage your business' development doesn't have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. See the page in this guide on what to include in your annual plan.

The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:

• a greater ability to make continuous improvements and anticipate problems
• sound financial information on which to base decisions
• improved clarity and focus
• a greater confidence in your decision-making

The main aim of your annual business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand - and expect to stand - over the coming year. Your annual business plan should include:

• an outline of changes that you want to make to your business
• potential changes to your market, customers and competition
• your objectives and goals for the year
• your key performance indicators
• any issues or problems
• any operational changes
• information about your management and people
• your financial performance and forecasts
• details of investment in the business

Business planning is most effective when it's an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they've happened.

• Review your current performance against last year/current year targets.
• Work out your opportunities and threats.
• Analyse your successes and failures during the previous year.
• Look at your key objectives for the coming year and change or re-establish your longer-term planning.
• Identify and refine the resource implications of your review and build a budget.
• Define the new financial year's profit-and-loss and balance-sheet targets.
• Conclude the plan.
• Review it regularly - for example, on a monthly basis - by monitoring performance, reviewing progress and achieving objectives.
• Go back to 1.

New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business' future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.

If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You'll find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure.

A budget is a plan to:

• control your finances
• ensure you can continue to fund your current commitments
• enable you to make confident financial decisions and meet your objectives
• ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by your plan that your business wants to achieve.

There are a number of benefits of drawing up a business budget, including being better able to:

• manage your money effectively
• allocate appropriate resources to projects
• monitor performance
• meet your objectives
• improve decision-making
• identify problems before they occur - such as the need to raise finance or cash flow difficulties
• plan for the future
• increase staff motivation

Creating, monitoring and managing a budget is key to business success. It should help you allocate resources where they are needed, so that your business remains profitable and successful. It need not be complicated. You simply need to work out what you are likely to earn and spend in the budget period.

Begin by asking these questions:

• What are the projected sales for the budget period? Be realistic - if you overestimate, it will cause you problems in the future.
• What are the direct costs of sales – i.e. costs of materials, components or subcontractors to make the product or supply the service?
• What are the fixed costs or overheads?

You should break down the fixed costs and overheads by type, e.g.:

• cost of premises, including rent, municipal taxes and service charges
• staff costs –e.g. wages, benefits, Québec Parental Insurance Plan (QPIP) premiums, contributions to the Québec Pension Plan (QPP) and to the financing of the Commission des normes du travail (CNT)
• utilities – e.g. heating, lighting, telephone
• printing, postage and stationery
• vehicle expenses
• equipment costs
• advertising and promotion
• travel and subsistence expenses
• legal and professional costs, including insurance

Your business may have different types of expenses, and you may need to divide up the budget by department. Don't forget to add in how much you need to pay yourself, and include an allowance for tax.

Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. See the page in this guide on planning for business success.

Once you've got figures for income and expenditure, you can work out how much money you're making. You can look at costs and work out ways to reduce them. You can see if you are likely to have cash flow problems, giving yourself time to do something about them.

When you've made a budget, you should stick to it as far as possible, but review and revise it as needed. Successful businesses often have a rolling budget, so that they are continually budgeting, e.g. for a year in advance.

There are a number of key steps you should follow to make sure your budgets and plans are as realistic and useful as possible.

Make time for budgeting

If you invest some time in creating a comprehensive and realistic budget, it will be easier to manage and ultimately more effective.

Use last year's figures - but only as a guide

Collect historical information on sales and costs if they are available - these could give you a good indication of likely sales and costs. But it's also essential to consider what your sales plans are, how your sales resources will be used and any changes in the competitive environment.

Create realistic budgets

Use historical information, your business plan and any changes in operations or priorities to budget for overheads and other fixed costs.

It's useful to work out the relationship between variable costs and sales and then use your sales forecast to project variable costs. For example, if your unit costs reduce by 10 per cent for each additional 20 per cent of sales, how much will your unit costs decrease if you have a 33 per cent rise in sales?

Make sure your budgets contain enough information for you to easily monitor the key drivers of your business such as sales, costs and working capital. Accounting software can help you manage your accounts.

Involve the right people

It's best to ask staff with financial responsibilities to provide you with estimates of figures for your budget - for example, sales targets, production costs or specific project control. If you balance their estimates against your own, you will achieve a more realistic budget. This involvement will also give them greater commitment to meeting the budget.

Decide how many budgets you really need. Many small businesses have one overall operating budget which sets out how much money is needed to run the business over the coming period - usually a year. As your business grows, your total operating budget is likely to be made up of several individual budgets such as your marketing or sales budgets.

Projected cash flow  -your cash budget projects your future cash position on a month-by-month basis. Budgeting in this way is vital for small businesses as it can pinpoint any difficulties you might be having. It should be reviewed at least monthly.

Costs  - typically, your business will have three kinds of costs:

• fixed costs - items such as rent, salaries and financing costs
• variable costs - including raw materials and overtime
• one-off capital costs - purchases of computer equipment or premises, for example

To forecast your costs, it can help to look at last year's records and contact your suppliers for quotes.

Revenues  - sales or revenue forecasts are typically based on a combination of your sales history and how effective you expect your future efforts to be.

Using your sales and expenditure forecasts, you can prepare projected profits for the next 12 months. This will enable you to analyse your margins and other key ratios such as your return on investment.

If you base your budget on your business plan, you will be creating a financial action plan. This can serve several useful functions, particularly if you review your budgets regularly as part of your annual planning cycle.

Your budget can serve as:

• an indicator of the costs and revenues linked to each of your activities
• a way of providing information and supporting management decisions throughout the year
• a means of monitoring and controlling your business, particularly if you analyse the differences between your actual and budgeted income

Benchmarking performance

Comparing your budget year on year can be an excellent way of benchmarking your business' performance - you can compare your projected figures, for example, with previous years to measure your performance.

You can also compare your figures for projected margins and growth with those of other companies in the same sector, or across different parts of your business.

Key performance indicators

To boost your business' performance you need to understand and monitor the key "drivers" of your business - a driver is something that has a major impact on your business. There are many factors affecting every business' performance, so it is vital to focus on a handful of these and monitor them carefully.

The three key drivers for most businesses are:

• working capital

Any trends towards cash flow problems or falling profitability will show up in these figures when measured against your budgets and forecasts. They can help you spot problems early on if they are calculated on a consistent basis.

To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas.

Using up to date budgets enables you to be flexible and also lets you manage your cash flow and identify what needs to be achieved in the next budgeting period.

Two main areas to consider

Your actual income  - each month compare your actual income with your sales budget, by:

• analysing the reasons for any shortfall - for example lower sales volumes, flat markets, underperforming products
• considering the reasons for a particularly high turnover - for example whether your targets were too low
• comparing the timing of your income with your projections and checking that they fit

Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed.

Your actual expenditure  - regularly review your actual expenditure against your budget. This will help you to predict future costs with better reliability. You should:

• look at how your fixed costs differed from your budget
• check that your variable costs were in line with your budget - normally variable costs adjust in line with your sales volume
• analyse any reasons for changes in the relationship between costs and turnover
• analyse any differences in the timing of your expenditure, for example by checking suppliers' payment terms

Original document, Budgeting and business planning , © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business ) Adapted for Québec by Info entrepreneurs

Our information is provided free of charge and is intended to be helpful to a large range of UK-based (gov.uk/business) and Québec-based (infoentrepreneurs.org) businesses. Because of its general nature the information cannot be taken as comprehensive and should never be used as a substitute for legal or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date.

• The websites operators cannot take any responsibility for the consequences of errors or omissions.
• You should always follow the links to more detailed information from the relevant government department or agency.
• Any reliance you place on our information or linked to on other websites will be at your own risk. You should consider seeking the advice of independent advisors, and should always check your decisions against your normal business methods and best practice in your field of business.
• The websites operators, their agents and employees, are not liable for any losses or damages arising from your use of our websites, other than in respect of death or personal injury caused by their negligence or in respect of fraud.

Need help? Our qualified agents can help you. Contact us!

• Create my account

The address of this page is: https://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/

INFO ENTREPRENEURS

380 St-Antoine West Suite W204 (mezzanine level) Montréal, Québec, Canada H2Y 3X7

www.infoentrepreneurs.org

514-496-4636 | 888-576-4444 [email protected]

Consent to Cookies

This website uses necessary cookies to ensure its proper functioning and security. Other cookies and optional technologies make it possible to facilitate, improve or personalize your navigation on our website. If you click "Refuse", some portions of our website may not function properly. Learn more about our privacy policy.

Click on one of the two buttons to access the content you wish to view.

• school Campus Bookshelves
• menu_book Bookshelves
• perm_media Learning Objects
• login Login
• how_to_reg Request Instructor Account
• hub Instructor Commons

Margin Size

• Download Page (PDF)
• Download Full Book (PDF)
• Periodic Table
• Physics Constants
• Scientific Calculator
• Reference & Cite
• Tools expand_more
• Readability

selected template will load here

This action is not available.

7.3: Introduction to Budgeting and Budgeting Processes

• Last updated
• Save as PDF
• Page ID 26081

\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

\( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)

\( \newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\)

( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\)

\( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

\( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\)

\( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)

\( \newcommand{\Span}{\mathrm{span}}\)

\( \newcommand{\id}{\mathrm{id}}\)

\( \newcommand{\kernel}{\mathrm{null}\,}\)

\( \newcommand{\range}{\mathrm{range}\,}\)

\( \newcommand{\RealPart}{\mathrm{Re}}\)

\( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

\( \newcommand{\Argument}{\mathrm{Arg}}\)

\( \newcommand{\norm}[1]{\| #1 \|}\)

\( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\AA}{\unicode[.8,0]{x212B}}\)

\( \newcommand{\vectorA}[1]{\vec{#1}}      % arrow\)

\( \newcommand{\vectorAt}[1]{\vec{\text{#1}}}      % arrow\)

\( \newcommand{\vectorB}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

\( \newcommand{\vectorC}[1]{\textbf{#1}} \)

\( \newcommand{\vectorD}[1]{\overrightarrow{#1}} \)

\( \newcommand{\vectorDt}[1]{\overrightarrow{\text{#1}}} \)

\( \newcommand{\vectE}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{\mathbf {#1}}}} \)

The budget—For planning and control

Time and money are scarce resources to all individuals and organizations; the efficient and effective use of these resources requires planning. Planning alone, however, is insufficient. Control is also necessary to ensure that plans actually are carried out. A budget is a tool that managers use to plan and control the use of scarce resources. A budget is a plan showing the company’s objectives and how management intends to acquire and use resources to attain those objectives.

A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/llmanagerialaccounting/?p=152

Companies, nonprofit organizations, and governmental units use many different types of budgets. Responsibility budgets are designed to judge the performance of an individual segment or manager. Capital budgets evaluate long-term capital projects such as the addition of equipment or the relocation of a plant. This chapter examines the master budget , which consists of a planned operating budget and a financial budget. The planned operating budget helps to plan future earnings and results in a projected income statement. The financial budget helps management plan the financing of assets and results in a projected balance sheet.

The budgeting process involves planning for future profitability because earning a reasonable return on resources used is a primary company objective. A company must devise some method to deal with the uncertainty of the future. A company that does no planning whatsoever chooses to deal with the future by default and can react to events only as they occur. Most businesses, however, devise a blueprint for the actions they will take given the foreseeable events that may occur.

A budget: (1) shows management’s operating plans for the coming periods; (2) formalizes management’s plans in quantitative terms; (3) forces all levels of management to think ahead, anticipate results, and take action to remedy possible poor results; and (4) may motivate individuals to strive to achieve stated goals.

Companies can use budget-to-actual comparisons to evaluate individual performance. For instance, the standard variable cost of producing a personal computer at IBM is a budget figure. This figure can be compared with the actual cost of producing personal computers to help evaluate the performance of the personal computer production managers and employees who produce personal computers. We will do this type of comparison in a later chapter.

Many other benefits result from the preparation and use of budgets. For example: (1) businesses can better coordinate their activities; (2) managers become aware of other managers’ plans; (3) employees become more cost conscious and try to conserve resources; (4) the company reviews its organization plan and changes it when necessary; and (5) managers foster a vision that otherwise might not be developed.

The planning process that results in a formal budget provides an opportunity for various levels of management to think through and commit future plans to writing. In addition, a properly prepared budget allows management to follow the management-by-exception principle by devoting attention to results that deviate significantly from planned levels. For all these reasons, a budget must clearly reflect the expected results.

Failing to budget because of the uncertainty of the future is a poor excuse for not budgeting. In fact, the less stable the conditions, the more necessary and desirable is budgeting, although the process becomes more difficult. Obviously, stable operating conditions permit greater reliance on past experience as a basis for budgeting. Remember, however, that budgets involve more than a company’s past results. Budgets also consider a company’s future plans and express expected activities. As a result, budgeted performance is more useful than past performance as a basis for judging actual results.

A budget should describe management’s assumptions relating to: (1) the state of the economy over the planning horizon; (2) plans for adding, deleting, or changing product lines; (3) the nature of the industry’s competition; and (4) the effects of existing or possible government regulations. If these assumptions change during the budget period, management should analyze the effects of the changes and include this in an evaluation of performance based on actual results.

Budgets are quantitative plans for the future. However, they are based mainly on past experience adjusted for future expectations. Thus, accounting data related to the past play an important part in budget preparation. The accounting system and the budget are closely related. The details of the budget must agree with the company’s ledger accounts. In turn, the accounts must be designed to provide the appropriate information for preparing the budget, financial statements, and interim financial reports to facilitate operational control.

Management should frequently compare accounting data with budgeted projections during the budget period and investigate any differences. Budgeting, however, is not a substitute for good management. Instead, the budget is an important tool of managerial control. Managers make decisions in budget preparation that serve as a plan of action.

The period covered by a budget varies according to the nature of the specific activity involved. Cash budgets may cover a week or a month; sales and production budgets may cover a month, a quarter, or a year; and the general operating budget may cover a quarter or a year.

Budgeting involves the coordination of financial and nonfinancial planning to satisfy organizational goals and objectives. No foolproof method exists for preparing an effective budget. However, budget makers should carefully consider the conditions that follow:

• Top management support All management levels must be aware of the budget’s importance to the company and must know that the budget has top management’s support. Top management, then, must clearly state long-range goals and broad objectives. These goals and objectives must be communicated throughout the organization. Long-range goals include the expected quality of products or services, growth rates in sales and earnings, and percentage-of-market targets. Overemphasis on the mechanics of the budgeting process should be avoided.
• Participation in goal setting Management uses budgets to show how it intends to acquire and use resources to achieve the company’s long-range goals. Employees are more likely to strive toward organizational goals if they participate in setting them and in preparing budgets. Often, employees have significant information that could help in preparing a meaningful budget. Also, employees may be motivated to perform their own functions within budget constraints if they are committed to achieving organizational goals.
• Communicating results People should be promptly and clearly informed of their progress. Effective communication implies (1) timeliness, (2) reasonable accuracy, and (3) improved understanding. Managers should effectively communicate results so employees can make any necessary adjustments in their performance.
• Flexibility If significant basic assumptions underlying the budget change during the year, the planned operating budget should be restated. For control purposes, after the actual level of operations is known, the actual revenues and expenses can be compared to expected performance at that level of operations.
• Follow-up Budget follow-up and data feedback are part of the control aspect of budgetary control. Since the budgets are dealing with projections and estimates for future operating results and financial positions, managers must continuously check their budgets and correct them if necessary. Often management uses performance reports as a follow-up tool to compare actual results with budgeted results.

The term budget has negative connotations for many employees. Often in the past, management has imposed a budget from the top without considering the opinions and feelings of the personnel affected. Such a dictatorial process may result in resistance to the budget. A number of reasons may underlie such resistance, including lack of understanding of the process, concern for status, and an expectation of increased pressure to perform. Employees may believe that the performance evaluation method is unfair or that the goals are unrealistic and unattainable. They may lack confidence in the way accounting figures are generated or may prefer a less formal communication and evaluation system. Often these fears are completely unfounded, but if employees believe these problems exist, it is difficult to accomplish the objectives of budgeting.

Problems encountered with such imposed budgets have led accountants and management to adopt participatory budgeting. Participatory budgeting means that all levels of management responsible for actual performance actively participate in setting operating goals for the coming period. Managers and other employees are more likely to understand, accept, and pursue goals when they are involved in formulating them.

Within a participatory budgeting process, accountants should be compilers or coordinators of the budget, not preparers. They should be on hand during the preparation process to present and explain significant financial data. Accountants must identify the relevant cost data that enables management’s objectives to be quantified in dollars. Accountants are responsible for designing meaningful budget reports. Also, accountants must continually strive to make the accounting system more responsive to managerial needs. That responsiveness, in turn, increases confidence in the accounting system.

Although many companies have used participatory budgeting successfully, it does not always work. Studies have shown that in many organizations, participation in the budget formulation failed to make employees more motivated to achieve budgeted goals. Whether or not participation works depends on management’s leadership style, the attitudes of employees, and the organization’s size and structure. Participation is not the answer to all the problems of budget preparation. However, it is one way to achieve better results in organizations that are receptive to the philosophy of participation.

• Accounting Principles: A Business Perspective. Authored by : James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University. Provided by : Endeavour International Corporation. Project : The Global Text Project. License : CC BY: Attribution
• Introduction to Budgeting (Managerial Accounting) . Authored by : Education Unlocked. Located at : youtu.be/pCwLhz0ltlE. License : All Rights Reserved . License Terms : Standard YouTube License

How to Master the Fine Art of Business Planning and Budgeting

Updated on: 5 January 2023

Starting a business is a challenging thing: you have to work hard and do your best to ensure its success. However, the work doesn’t end even when your business actually becomes operational. You still have to do so much more to ensure that it will keep on track.

Of course, it could be hard, especially for the beginners. It seems that you have to keep an eye on so many things and focus on so many urgent tasks every day that there isn’t any time left for business planning and budgeting. However, it is very important to find that time, because business planning and budgeting are actually one of the most important things for business success.

Why so? Because a plan allows you to get a better understanding of how you see your business, how you want to develop it, and so on. When you create a plan, you set targets that you want to achieve as well as define the ways of evaluating the success of your business.

Basically, planning gives you all the necessary tools that you can use to improve your business in the nearest future. However, this happens only when planning is done correctly.

What to Include in Your Annual Plan?

If you want to create a perfect business plan, you have to know what has to be included in it and how big it will be. Of course, there are no strict limitations to a size of a business plan as each business is different. However, if you are doing it for the first time, I recommend starting with a yearly plan: it is not too big and not too short.

A good annual plan has to include the following things:

• an executive summary
• a list of products and services you offer (or plan to offer this year)
• a detailed description of your target market
• a financial plan
• a marketing plan as well as a sales plan
• milestones and metrics
• a description of your management team

In order to write it in the best way possible, you need to spend some time thinking about the current status of your company as well as how it should look like by the end of the year. Describe your target market, think about the goals that have to be achieved this year, about the products and services that have to be launched.

Visualize the information to make it easier for you to see the whole picture (this is especially important for those, who don’t have much experience in planning). You can use charts, and different diagram types such as mind maps to visualize and organize your ideas and plans.

Try choosing a few main goals for your company and add them to the annual plan being as specific as possible: for example, if you want to increase your earnings, you should specify by how much (10%, 15%, etc.). It’s also good to think about the obstacles you might face and come up with some ways to minimize the potential risks that could occur.

Remember that while a business plan has to be specific and detailed when you write it, it shouldn’t remain static by the end of the year. No business is predictable enough for this to happen: you should understand it and prepare to act quickly, adding changes to a business plan if something unexpected happens.

Business Planning Cycle

As I said, typical business planning isn’t a static thing – actually, it’s a cycle that usually looks like this:

• You take some time to evaluate the effectiveness of your business. In order to do so, you should compare its current performance with the last year’s one – or with targets set earlier this year.
• Then you have to think about opportunities that might appear as well as the threats you might face.
• Remember about both successes and failures your business experienced throughout last year. Analyze them and think what can be done to repeat/avoid them.
• Think of the main business goals you would like to achieve and be sure to add them to the new annual plan (or edit the old one according to them).
• Create a budget.
• Come up with budget targets.
• Complete the plan.
• Be sure to review it regularly (every month, every three months, etc.), making changes if necessary.

Repeat the whole cycle.

Business Planning and Budgeting

When a business is still small and growing, it might seem unnecessary to plan its budget. However, it’s crucial if you want to avoid financial risks and be able to invest in opportunities when they appear.

Moreover, with the rapid growth of your business, you might find yourself in a situation where you aren’t able to control all the money anymore. Expansion of the business usually includes the creation of different departments responsible for different things – and each of these departments needs to have its own budget.

As you see, the bigger your business becomes, the more complicated it gets. While it’s okay to not control every cent by yourself, it is still up to you to make sure that your business keeps growing instead of becoming unprofitable. That’s why it’s so important to create a budget plan that allows you to understand the exact income your business brings by the end of the month and the amount of it, you are able to save or spend on different things.

It is important to remember that a business plan is not a forecast in any way. It doesn’t predict how much money you’ll make by the end of the year. Instead, it’s a tool for ensuring that your business will remain profitable even after covering all the necessary expenses.

Moreover, a business plan also ensures that you’ll have the opportunity to invest money into future projects, fund everything that has to be funded this year, and meet all of the business objectives.

Benefits of a Business Budget

The whole budget planning has a lot of benefits:

It allows you to evaluate the success of your business: when you know exactly how much profit your business gave you at the beginning of the year, you are able to compare it with the profit by the end of the year, understanding whether your financial goals have been met or not.

It allows managing money effectively: for example, if you save money for predicted one-time spends, you won’t be caught by surprise by them.

It helps identify the problems before they actually happen: for example, if you evaluate your budget and see that the income left after covering all the expenses is quite small, you’ll understand that you need to make more profit this year.

It helps make smarter decisions, by only investing money that you can afford to invest.

It allows you to manage your business more effectively, allocating more resources to the projects that need them the most.

It helps in increasing staff motivation.

Basically, when you have a budget plan ready, you have your back covered.

How to Create a Budget?

There are so many articles written on how to create a perfect business budget, but most of them narrow down to these 5 simple things:

• Evaluate your sources of income. You have to find out how much money your business brings on a daily basis in order to understand how much money you can afford to invest and spend.
• Make a list of your fixed expenses. These ones repeat every month and their amount doesn’t change. Some people forget to exclude the sum needed to cover these expenses from the monthly income, but it’s important to do so in order to get a clear understanding of your budget.
• Don’t forget about variable expenses. These ones don’t have a fixed price but still have to be paid every month. Come up with an approximate sum you’ll have to pay and include it in your budget.
• Predict your one-time expenses. Every business needs them from time to time, but if you plan your budget forgetting about these expenses, spending money on them could affect it greatly and not in a positive way.
• When you list all the income and expense sources, it’s time to pull them all together. Evaluate how much money you’ll have each month after you cover all these expenses. Then think of what part of that sum you could afford to invest into something.

While a whole process of budget creation might seem too complicated, you still should find time to do it. It’s totally worth the effort – moreover, such a plan could help you not only throughout the next month but also throughout the next year (if your expense and income sources won’t change much).

Of course, it’s still important to review it from time to time, making changes when necessary. However, the review process won’t be as complicated as the creation of a budget plan from scratch.

Key Steps in Drawing up a Budget

If you’ve never created a budget plan before, you could make some budgeting mistakes . However, when it comes to financial planning, the smallest mistake could have a negative impact. The following tips can help you easily avoid most mistakes, making your budget plan more realistic.

• Try to take it slow

The more time you spend on budgeting, the better it is for you. It’s hard to create a flawless budget plan quickly: there’s a big chance you might miss something. That’s why it’s vital to make sure that you’ve listed all the sources of your income and expenses, and are prepared well.

• You can use last year’s data

Last year’s data could help you see the whole picture better: you can compare it with this year’s data, finding out whether your income has increased or decreased. However, you should use it only for comparing and as a guide. You have new goals and resources this year, and the environment you’re working in has changed too, so your current planning and strategies should differ from the ones you used last year.

• Make sure that a budget is realistic

The most important thing about a budget plan is that it has to cover not only predictable expenses but also less predictable ones. Of course, making predictions is hard but using previous data along with some other business plans as examples could make the whole process easier.

A budget also has to be detailed: the information it contains has to allow you to monitor all the key details of your business, be it sales, costs, and so on. You could also use some accounting software for more effective management.

• It’s okay to involve people

If your business is big enough, you probably have some employees responsible for a part of the financial operations. It’s good to involve them in a budget creation process too, using their knowledge and experience to predict some expenses, for example. If the people you involve are experienced enough, the combination of their professionalism and your knowledge will make a budget more realistic and effective.

• Visualizing helps

Various charts and diagrams are so popular in business for a reason: they allow tracking your incomes and expenses easily. For example, you can create one chart based on your plan and another chart based on an actual budget and compare them during planned revisions to see whether your budget plan works just as expected or not.

As I mentioned above, it’s easier to control finances when you are running a small business. Such business needs only one budget that is created for a certain period – in most cases, for a year. Larger businesses, however, require something else. They have various departments, so it is better to create several budgets at once, tailoring each of them to a certain department’s needs.

Don’t Forget to Review!

I’ve already mentioned that a review is an important process of every business planning and budgeting. No matter how good your plan is, it is impossible to predict everything with 100 percent accuracy. Your business will grow and the environment around it will change, so the quicker you’ll react to such changes, the better it is for you.

That’s why you should schedule budget reviews from time to time. I recommend starting with reviewing it every month and then switching to a more comfortable schedule. Every month review can help you notice the flaws of your plan (which is especially important if you don’t have much experience in this kind of thing) as well as understand how stable your business is.

If you see that you don’t have to make changes often, you could start reviewing your plan every three or six months (however, I recommend doing it more often).

You can use various common diagrams to help you . The best thing about diagrams is that they help visualize data well, which is very important when you need to see the whole picture more clearly – and this happens often during budget planning. For example, a diagram or a chart of your company’s income can show you how much your finances have grown during a certain period. Moreover, if you notice certain downfalls in a chart (that aren’t predicted), you’ll be able to react to it quickly, fixing things that went wrong.

What do you need to consider during the whole review process? First, your actual income. Probably it will be different each month: every business has its own peak sales periods and drop sales ones, and you have to find them and remember them for more effective planning next year. It is important to check whether the income matches the one you predicted or not: if not, you have to find out why it happened.

Second, you have to evaluate your actual expenses. See if they differ from your budget, how much do they affect it, why they exceed your expectations (if they do), and so on.

Probably the best thing about reviewing is that it allows you to react to all the unexpected situations quickly, saving your business from the potential troubles and downfalls. So be sure not to skip it.

As you see, writing a business plan is a complex process. You have to be very attentive, to plan everything, starting with your goals and ending with your expenses, to consider so many things and to involve other people in planning if possible. Moreover, you also have to learn all the time, reviewing your plans, making changes, finding the ways to react to unexpected situations.

But while this might look like a tough thing to do, it is very convenient for everyone who wants to manage their business successfully. The planning takes a lot off your shoulders and makes the whole business running process easier. You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

You are able to evaluate the effectiveness of your business by looking at the monthly income increase, at the goals you wanted to achieve, and so on. You are also able to predict the potential downfalls of your business and to use the tools you have to minimize all the risks.

I hope that this guide will help you create strong and realistic budget and business plans, and successfully implement them in running your business. If you have some tips on business and budget planning that you want to share, please do so in the comment section below!

Author’s Bio:

Kevin Nelson started his career as a research analyst and has changed his sphere of activity to writing services and content marketing. Apart from writing, he spends a lot of time reading psychology and management literature searching for the keystones of motivation ideas. Feel free to connect with him on Facebook , Twitter , Google+ , Linkedin .

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

More Related Articles

Leave a comment Cancel reply

Please enter an answer in digits: 5 + fifteen =

Download our all-new eBook for tips on 50 powerful Business Diagrams for Strategic Planning.

• Credit cards
• View all credit cards
• Banking guide
• Loans guide
• Insurance guide
• Personal finance
• View all personal finance
• Small business
• Small business guide
• View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Create a Business Budget for Your Small Business

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

A business budget estimates future revenue and expenses in detail, so that you can see whether you’re on track to meet financial expectations for the month, quarter or year. Think of your budget as a point of comparison — you run your actual numbers against it to determine if you’re over or under budget.

From there, you can make informed business decisions and pivot accordingly. For example, maybe you find that your expenses are over budget for the quarter, so you may hold off on a large equipment purchase.

Here’s a step-by-step guide for creating a business budget, along with why budgets are crucial to running a successful business.

» MORE: What is accounting? Definition and basics, explained

QuickBooks Online

How does a business budget work?

Budgeting uses past months’ numbers to help you make financially conservative projections for the future and wiser business decisions for the present. If you’ve had a few bad months and predict another slow one, you can prepare to minimize expenses where possible. If business has been booming and you’re bringing in new customers, maybe you invest in buying more inventory to satisfy increased demand.

Creating a business budget from scratch can feel tedious, but you might already have access to tools that can help simplify the process. Your small-business accounting software is a good place to start, since it houses your business’s financial data and may offer basic budgeting reports.

To create a budget in QuickBooks Online , for example, you break down your estimated income and expenses across each area of your business. Then, the software calculates figures like gross profit, net operating income and net income for you.

You can then compare actual versus projected figures side by side by running a Budget vs. Actuals report. Businesses that need more in-depth features, like cash flow forecasting or the ability to use different projection methods, might subscribe to business budgeting software in addition to accounting software.

If your small business doesn’t have access to these features or has simple financials, you can download free small-business budget templates to manually create and track your budget. Regardless of which option you choose, your business will likely benefit from hiring an accountant to help manage your budget, course-correct when the business gets off track, and make sure taxes are being paid correctly.

Why is a business budget important?

A business budget encourages you to look beyond next week and next month to next year, or even the next five years.

Creating a budget can help your business do the following:

Maximize efficiency. 

Establish a financial plan that helps your business reach its goals. 

Point out leftover funds that you can reinvest.

Predict slow months and keep you out of debt.

Estimate what it will take to become profitable.

Provide a window into the future so you can prepare accordingly.

Creating a business budget will make operating your business easier and more efficient. A business budget can also help ensure you’re spending money in the right places and at the right time to stay out of debt.

How to create a business budget in 6 steps

The longer you’ve been in business, the more data you’ll have to inform your forward-looking budget. If you run a startup, however, you’ll want to do extensive research into typical costs for businesses in your industry, so that you have working estimates for revenue and expenses.

From there, here’s how to put together your business budget:

1. Examine your revenue

One of the first steps in any budgeting exercise is to look at your existing business and find all of your revenue sources. Add all those income sources together to determine how much money comes into your business monthly. It’s important to do this for multiple months and preferably for at least the previous 12 months, provided you have that much data available.

Notice how your business’s monthly income changes over time and try to look for seasonal patterns. Your business might experience a slump after the holidays, for example, or during the summer months. Understanding these seasonal changes will help you prepare for the leaner months and give you time to build a financial cushion.

Then, you can use those historic numbers and trends to make revenue projections for future months. Make sure to calculate for revenue, not profit. Your revenue is the money generated by sales before expenses are deducted. Profit is what remains after expenses are deducted.

2. Subtract fixed costs

The second step for creating a business budget involves adding up all of your historic fixed costs and using them to reliably predict future ones. Fixed costs are those that stay the same no matter how much income your business is generating. They might occur daily, weekly, monthly or yearly, so make sure to get as much data as you can.

Examples of fixed costs within your business might include:

Debt repayment.

Employee salaries.

Depreciation of assets.

Property taxes.

Insurance .

Once you’ve identified your business’s fixed costs, you’ll subtract those from your income and move to the next step.

3. Subtract variable expenses

As you compile your fixed costs, you might notice other expenses that aren’t as consistent. Unlike fixed costs, variable expenses change alongside your business’s output or production. Look at how they’ve fluctuated over time in your business, and use that information to estimate future variable costs. These expenses get subtracted from your income, too.

Some examples of variable expenses are:

Hourly employee wages.

Owner’s salary (if it fluctuates with profit). 

Raw materials.

Utility costs that change depending on business activity.

During lean months, you’ll probably want to lower your business’s variable expenses. During profitable months when there’s extra income, however, you may increase your spending on variable expenses for the long-term benefit of your business.

4. Set aside a contingency fund for unexpected costs

When you’re creating a business budget, make sure you put aside extra cash and plan for contingencies.

Although you might be tempted to spend surplus income on variable expenses, it’s smart to establish an emergency fund instead, if possible. That way, you’ll be ready when equipment breaks down and needs replacing, or if you have to quickly replace inventory that's damaged unexpectedly.

5. Determine your profit

Add up all of your projected revenue and expenses for each month. Then, subtract expenses from revenue. You may also see the resulting number referred to as net income . If you end up with a positive number, you can expect to make a profit. If not, that’s a loss — and that can be OK, too. Small businesses aren’t necessarily profitable every month, let alone every year. This is especially true when your business is just starting out. Compare your projected profits to past profits to confirm whether they’re realistic.

Looking for accounting software?

See our overall favorites, or choose a specific type of software to find the best options for you.

on NerdWallet's secure site

6. Finalize your business budget

Are the resulting profits enough to work with, or is your business overspending? This is your opportunity to set spending and earning goals for each month, quarter and year. These goals should be realistic and achievable. If they don’t line up with your projections, make sure to establish a strategy for making up the difference.

As time goes on, regularly compare your actual numbers to your budget to determine whether your business is meeting those goals, and course correct if necessary.

» MORE: Ways your small business can spend smarter

A business budget projects future revenue and expenses so you can create a smart, realistic spending plan. As the year progresses, comparing your actual numbers against your budget can help you hold your business accountable and make sure it reaches its financial goals.

A business budget includes projected revenue, fixed costs, variable costs and the resulting profits. You can also factor in contingency funds for unforeseen circumstances like equipment failure.

On a similar note...

• Search Search Please fill out this field.
• Corporate Finance

How Budgeting Works for Companies

What Is a Budget?

A budget is a forecast of revenue and expenses over a specified future period. Budgets are utilized by corporations, governments, and households and are an integral part of running a business (or household) efficiently. Budgeting for companies serves as a plan of action for managers as well as a point of comparison at a period's end.

The budgeting process for companies can be challenging, particularly if customers don't pay on time or revenue and sales are intermittent. There are several types of budgets that companies use, including operating budgets and master budgets as well as static and flexible budgets. In this article, we explore how companies approach budgeting as well as how companies deal with missing their budgets.

Key Takeaways

• A budget is a forecast of revenue and expenses over a specified period and is an integral part of running a business efficiently.
• A static budget is a budget with numbers based on planned outputs and inputs for each of the firm's divisions.
• A cash-flow budget helps managers determine the amount of cash being generated by a company during a period.
• Flexible budgets contain the actual results and are compared to the company's static budget to identify any variances.

How Budgets Work

Although the budgeting process for companies can become complex, at its most basic, a budget compares a company's revenue with its expenses in a given period. When they spend more than what was budgeted they can create a revenue deficit .

Of course, determining how much to spend on various expenses and projecting sales is only one part of the process. Company executives also have to contend with a myriad of other factors, including projecting capital expenditures , which are large purchases of fixed assets such as machinery or a new factory. They must also plan for their ongoing cash needs, revenue shortfalls, and the economic backdrop. Regardless of the type of business, the ability to gauge performance using budgets is critical to a company's overall financial health.

Types of Budgets

Below are a few of the most common types of budgets that corporations use to accurately forecast their numbers.

Master Budget

Most companies will start with a master budget, which is a projection for the overall company. Master budgets typically forecast the entire fiscal year. The master budget will include projections for items on the income statement , the balance sheet, and the cash flow statement . These projections can include revenue, expenses, operating costs, sales, and capital expenditures.

Static Budget

A static budget is a budget with numbers based on planned outputs and inputs for each of the firm's divisions. A static budget is usually the first step of budgeting, which determines how much a company has and how much it will spend. The static budget looks at fixed expenses, which are not variable or dependent on production volumes and sales. For example, rent would be a fixed cost regardless of the sales volume for a company.

Some industries such as nonprofits receive donations and grants resulting in a static budget from which they can't exceed. Other industries use static budgets as a starting point or a baseline number, similar to the master budget, and make adjustments at the end of the fiscal year if more or less is needed in the budget. When creating a static budget, managers use economic forecasting methods to determine realistic numbers.

Operating Budget

The operating budget includes the expenses and revenue generated from the day-to-day business operations of the company. The operating budget focuses on the operating expenses, including cost of goods sold (COGS) and the revenue or income. COGS is the cost of direct labor and direct materials that are tied to production.

The operating budget also represents the overhead and administrative costs directly tied to producing the goods and services. However, the operating budget doesn't include items such as capital expenditures and long-term debt.

Cash-Flow Budget

A cash-flow budget helps managers determine the amount of cash being generated by a company during a specific period. The inflows and outflows of cash for a company are important because expenses need to be paid on time from the cash generated. For example, monitoring the collection of accounts receivables , which is money owed by customers, can help companies forecast the cash due in a particular period.

This process can be challenging if too many customers are past-due. To compensate for this, many businesses create something called an " allowance for doubtful accounts ," which estimates the amount of accounts receivable that are expected to not be collectible.

Cash flow budgets help to examine past practices to examine what's working and what's not and make adjustments. For example, a company could apply for a short-term working capital line of credit from a bank to ensure they have cash in the event a client pays late. Also, companies can ask for more flexible options for their accounts payables , which is money owed to suppliers, to help with any short-term cash-flow needs.

Using a Budget To Evaluate Performance

Once a period has ended, management must compare the forecasts from the static or master budget to the company's performance. It's at this stage that companies calculate whether the budget came in line with planned expenditures and income.

Flexible Budget

A flexible budget is a budget containing figures based on actual output. The flexible budget is compared to the company's static budget to identify any variances (or differences) between the forecasted spending and the actual spending.

With a flexible budget, budgeted dollar values (i.e., costs or selling prices) are multiplied by actual units to determine what particular number will be given to a level of output or sales. The calculation yields the total variable costs involved in production. The second component of the flexible budget is the fixed costs. Typically, fixed costs do not differ between static and flexible budgets.

Since flexible budgets use the current period's numbers—sales, revenue, and expenses—they can help create forecasts based on multiple scenarios. Companies can calculate various outcomes based on different outputs, such as sales or units produced. Flexible or variable budgets help managers plan for both low output and high output to help ready themselves regardless of the outcome.

Budget Variances

As stated earlier, variances can arise between the static budget and the actual results. The two common variances are called the flexible budget variance and sales-volume variance.

The flexible budget variance compares the flexible budget to actual results to determine the effects that prices or costs have had on operations. By comparison, the sales-volume variance compares the flexible budget to the static budget to determine the effect that a company's level of sales activity had on its operations.

From these two budgets, a company can develop individual flexible and static budgets for any element of its operations. The variances are classified as either favorable or unfavorable.

If the sales-volume variance is unfavorable (flexible budget is less than static budget), the company's sales (or production with a production volume variance) will turn out to be less than anticipated.

If, however, the flexible budget variance was unfavorable, it would be the result of prices or costs. By knowing where the company is falling short or exceeding the mark, managers can evaluate the company's performance more efficiently and use the findings to make any necessary changes.

A flexible budget can help companies account for both variable and fixed expenses, creating a more dynamic process and leading to more accurate forecasts.

Implementing Budgets

For most companies, expenses pop up from time to time. Static budgets typically act as a guideline, meaning they can be changed or adjusted once the variances have been identified via a flexible budget. Understanding the different types of budgeting , managers can gain a wealth of information through the analysis of budget variances leading to better-informed business decisions.

Mitchell Franklin, Patty Graybeal, Dixon Cooper. “ Principles of Accounting, Volume 2: Managerial Accounting. 7.4 Prepare Flexible Budgets .” OpenStax, 2019.

Mitchell Franklin, Patty Graybeal, Dixon Cooper. “ Principles of Accounting, Volume 2: Managerial Accounting. 8.5 Describe How Companies Use Variance Analysis .” OpenStax, 2019.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

How to Write a Small Business Financial Plan

Noah Parsons

4 min. read

Updated April 22, 2024

Creating a financial plan is often the most intimidating part of writing a business plan.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

Download Template

Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

Get Started

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

Related Articles

10 Min. Read

How to Set and Use Milestones in Your Business Plan

24 Min. Read

The 10 AI Prompts You Need to Write a Business Plan

How to Write a Competitive Analysis for Your Business Plan

How to Write the Company Overview for a Business Plan

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

Creating a Budgeting Process: Step-by-Step

The budgeting process is an essential business function that’s bound to make even the most organized managers stress. What could be more important to the daily operations of the company than its cash flow? Messing up in this field could result in disrupted projects or, at worst, insolvency. 

And yet, studies have shown that  about half of organizations  don’t even have a formally documented budgeting process.

If your organization is taking on some new projects and you need to make sure that the funding stays sufficient, then studying up on the budgeting process is the best next step to take. Find out how to not only keep track of expenses and revenue but also gain more value out of your purchases and procurement process.

What Is a Budgeting Process?

The process of reviewing past budgets and planning budgets to forecast revenue is known as the budgeting process. It includes aligning with upper management in order to analyze budget data and establish goals for the future to better  control spending .

When deciding on a budget, a business allocates resources to certain company projects and objectives. Controls are put in place to enforce budgeting policies and prevent overspending. We can generally look at three different types of budgets:

• Operating  budgets involve both the revenue generated and the expenditures made during daily operations. Employee salaries and benefits are included in this category.
• Capital  expenditure involves major purchases like physical properties and equipment. Budget managers consider this category by setting priorities and making decisions to control risks.
• Cash flow  is another form of budgeting that looks at the relationship between income and expenses. Specifically, it makes sure that you have enough cash on hand at any time to cover immediate expenditures.

The budgeting process covers all the steps involved in determining and setting a budget, which can include:

• Reviewing past financial quarters and using the data to forecast future expenses and revenues.
• Developing a plan to manage the budget and implementing it. Allocate resources to cover the company’s projects and departments.
• Regularly checking up on progress by monitoring budget levels throughout the quarter.
• Evaluating the performance of the budgeting process in the end and seeing what can be learned.

But we need to go beyond just definitions and look at the role of budgeting in corporate and project management.

The Primary Goals of Budgeting

In addition to the obvious benefit of controlling spending and keeping tabs on financial activities, budgeting is taken seriously because it also:

• Helps with project planning:  What happens if market conditions change and the business needs to address problems later down the line? Budgeting is the perfect way to prepare financially.
• Coordinates collaboration:  Since the budget impacts everyone, the budgeting process must involve all departments and teams working together for the wellbeing of the overall company as a whole.
• Motivates management:  Upper management teams who are aware of budgeting efforts are more likely to understand the goals and initiatives of the business. They are motivated to hold everybody accountable for a stable budget.
• Measures performance:  Budgeting forces you to look at the financial figures and determine whether or not you’re meeting your targets. If any cash flow issues arise, you will be able to know early on.

A detailed budget sets realistic goals for your projects and ensures proper resource allocation to prevent costly spending overflows.

Why the Budgeting Process Is Vital

Companies balance their budgets for the same reason individuals do. By keeping track of the timing and amounts of income and expenditures, it’s possible to set realistic goals, track deviations in planning, and enforce corrective action.

Without enough cash, a business cannot sustain itself, but the advantages of the budgeting process are a little more complex than that.

• Setting expectations:  Once a budget sets a spending target for a particular project, then the teams can work with those expectations in mind. They can set their own deadlines and allocate resources according to the company’s master budget.
• Aligning resource allocation to the goals of the business:  Think about what part of the company deserves more money this quarter. For instance, if product sales are down this month, it may be wise to allocate more of the budget to sales and marketing.
• Facilitating collaboration:  Departments should not be siloed. Budgeting is the perfect opportunity to connect the finance teams with the rest of the business. Everyone gets a chance to talk about priorities, expectations, funding, and goals, and the finance department gets to share guidance.

A company with a strong budgeting process in place is also seen as more trustworthy when it comes to third-party partnerships. For instance, if you ever need to borrow a business loan, your lender will likely want to know how well you’ve followed budgets in the past.

How Does One Approach Budget Management?

Budget management cannot be perfected overnight, and neither is it possible to achieve for one person. It requires collaboration among upper management, the finance department, and the various budget and project managers across the company.

A budget can be developed in a  top-down  approach, where upper management begins the process by looking at business objectives and current resources to prepare a budget plan. It then passes down the responsibility of enforcing this plan to the department managers, who themselves can set their own guidelines based on the overall budget allocation.

Top-down works out in most cases because lower management can save time and effectively hit the ground running since most of the work has been done externally.

Alternatively, budgeting can occur from the  bottom-up , essentially an inverse of top-down. Planning begins at the departmental level and goes up; that is, each department prepares its own budget plans and cost estimations, and upper management combines them all into one big, inclusive budget process.

Bottom-up is more time-consuming, but it also results in a more suitable budget since the people who will conduct daily operations and actually spend the money have a larger voice in how resources will be allocated. Each department is also likely to be more motivated to achieve financial goals this way since it was the one who made the budget to begin with.

In a non-business example, New York City famously implemented its own bottom-up strategy known as  Participatory Budgeting  in the early 2010s. The plan gave control of the public budgeting process to community members.

What Steps Does the Budgeting Process Involve?

Regardless of the approach you take, the next step is to convert the budgeting process into tangible business strategy. Start by determining your budgetary goals (i.e. what you’re trying to achieve with limited resources). Then determine how you will achieve those objectives and track your progress along the way.

• Identify goals:  Depending on factors like market dynamics,sales trends, and current resources, a company has different needs regarding its budget and must plan accordingly.
• Look at past data:  Take advantage of the existing information you have from last quarter. What did you learn about your last budget that can be used this time around? Were there unanticipated shortfalls in funding? Were the assumptions you made back then still accurate? And how has the market or industry changed since then? Encourage your individual departments to ask themselves these questions.
• Get some tangible numbers out:  Getting into the actual figures, identify your income streams, investments, and expenditures. Whether we’re talking about exact numbers or estimates, look for fixed costs (overhead, static costs like rent, mortgage, utilities, salaries, and insurance), variable costs (discretionary fees like software subscriptions, travel costs, and advertising services), and irregular costs (surprise expenses that are difficult to forecast, such as special events and mergers/acquisitions).
• Always have cash flow in mind:  Don’t just look at the amounts; look at the timing as well. Is your consistent revenue enough to take care of seasonal, momentary expenditures? Look at cash flow in terms of the money going in at a certain point compared to the money going out.

And don’t forget to revisit your budgeting process regularly. It’s not a one-time consideration, as you will need to check back and update your efforts. Schedule budgetary reviews every quarter so that potential issues are caught in time.

Budgeting Process Techniques and Best Practices

Corporate budgeting is a high-risk activity that even experienced management teams need time to get right. Thankfully, it isn’t too difficult with a bit of practice and an understanding of how the process generally works.

In addition to the above steps, know that budgets will often change with time. Many businesses operate in fluctuating markets where demand goes up and down depending on the month, which are conditions that call for seasonal budgeting. Also, be honest in your estimations. Don’t over-exaggerate sales or expenditures, and be sure to include even small charges like federal and state taxes.

Know the “Why” Behind the Numbers

A budget manager clearly works with a lot of numbers, but have you ever stopped to think about the “why” beyond those numbers? What assumptions is your budget based on, and how would you interpret those numbers?

To illustrate, try to think about the key causes for high expenses the next time you calculate them out. Are you in need of additional staff, hence the increased investment into salaries? Or are your sales teams short on tools, and you need to spend more on marketing initiatives?

On the revenue side of things, remember what products and services you sold to customers that quarter. Did the sales reach your intended goals, or did they fall short and cause cash flow problems early on? Are you able to adjust product pricing accordingly to address the problem, or is there an underlying need for more robust marketing strategies?

A budget is more than just a spreadsheet. It’s a guide to how your operations should be laid out.

Grasp at Key Performance Indicators

The budgeting process is also heavily KPI-based. Think about how resource allocation should reflect the overall goals of your organization. Key performance indicators tie your efforts to those business objectives and keep you going in the right direction as the budgeting process continues.

Some examples of KPIs often used by budgeting teams are:

• Cash flow and expenses
• Employee payroll
• Accounts payable and receivable fees
• Turnover rates

Regardless of which ones you end up using, make them clear and easily measurable to get the most out of them.

Get It Written Down

Planning out the budget needs to be a formal business process, so don’t just leave it a mental roadmap. Have a budget plan written down somewhere so that you may be thorough in your enforcement controls. In fact, successful companies always publish their annual budget documents to be shared throughout the organization for this reason.

While paper or even spreadsheet programs are an option, the most efficient and organized way to go about a budget report is through accounting and  procurement software  platforms. As requirements change and budgets shift in focus, a flexible and versatile way to manage your funds is essential to staying competitive in today’s market.

About the Author

RELATED ARTICLES

The budgeting process for smart, modern companies

Published on January 17, 2024

The budgeting process can be long and difficult. There are questions to answer, riddles to solve, and teams to consult. As a result, budgets can easily be left until it’s too late, or not done at all.

And on the other hand, you have the overly prescriptive, downright pedantic budgets. Those that have every tiny expense accounted for, managed across a suite of spreadsheets that most users can’t understand. This is definitely better than no budget at all, but can create plenty of trouble along the way.

Whichever side you land on, this article will help. It sets out the essentials of the business budgeting process, to make sure you’re doing what’s required.

It also includes best practices and principles to ensure you’re getting it right, no matter how simple or complex your budget ends up being.

Because your company must have a budget. But it’s up to you whether it’s effective, worthwhile, or simply a big waste of time.

The budgeting process

The budgeting process lets an organization plan and prepare its budgets for a set period. It involves reviewing past budgets, identifying and forecasting revenue for the coming period, and assigning amounts to spend on a company’s various costs.

When done well, the process involves input from senior management, your finance team, and budget managers across the organization.

Think of your budget as putting your business plan into action. You’ve set priorities and goals for the company in the coming year, and the budget allocates financial resources to achieving these.

The importance of business budgeting

At their most basic, the benefits of budgeting are fairly obvious: if the business runs out of money, the business can’t survive. So a clear cash flow plan that all teams can follow is essential.

But beyond simply ensuring the business sustains, there are several great reasons to cherish your budgeting process :

It helps to set clear targets and expectations . Your budget sets targets for costs and revenues, which helps other teams tailor their work to achieve them.

It’s vital for funding . If you’re asking venture capital firms or a bank for more money, they’re going to want to know how you’ll spend it. They’ll also want to see that you’ve made and followed budgets in the past.

It sets out your priorities tangibly . It’s likely that your teams set their own deadlines and timeframes to a certain extent. The budget gives them global guidelines for this, and involving them in the budgeting process makes this possible earlier.

It avoids difficult conversations . Individuals will always have exciting ideas and campaigns they want to run. While this should be encouraged, your budget gives you firm numbers to keep expectations in check.

It connects finance teams with the rest of the business . This is an integrated process that requires input from all over the company. Finance will learn more about other teams’ priorities, and then can offer structured guidance.

Clearly, the biggest upside is that budgets give companies more control and visibility over spending .

8 key budgeting process steps

There is probably no one “right way” to create a business budget. But to guide you through the process, here are eight important steps to follow:

Review the previous period

Calculate existing revenue

Set out fixed costs

List variable costs

Forecast extra spending

Scrutinize cash flow

Make business decisions

Communicate it clearly

Let’s take a closer look at each in turn.

1. Review the previous period

The starting point should always be to look over the existing information you have to hand. And in this case, the best evidence for how your new budget should play out is the previous one.

A few questions to consider:

Did you spend more or less than anticipated?

Were your assumptions about the industry and your own growth accurate?

Were there unexpected hurdles or shortfalls, and what caused these?

Was the budget easy to enforce? Did team members follow it?

You should do this at a high level for the entire company, and you should also encourage individual budget managers (if you have them) to do the same for their own scopes.

Also critical in this step is to consult other team leaders . As we’ll see, the best budgets are collaborative, and you need to know how well the previous budget worked for everyone affected.

2. Calculate existing revenue

The most obvious starting point for any budgeting exercise is to figure out how much you have to spend. This will involve other costs, of course, but we’ll come to these next.

At the company level, you need to identify income streams. How much money are you making gross ? List your core products, their pricing, and the expected volumes for each in the coming year. Naturally, this involves some estimates and won’t be perfect.

For startups that aren’t yet profitable (or don’t have paying customers at all), you’ll be spending investor capital or venture debt. So for this stage, you need to identify the “burn rate” you’re comfortable with - how much of the total investment you’re able to commit for each period of time.

3. Set out fixed costs

Fixed costs - often called “overheads” - are those over which you have little control. Most importantly, they’re not impacted by your sales - whether the business succeeds or not won’t have any effect on the amount you pay.

Fixed costs can include:

Rent or mortgage payments for office space

Website hosting and servers

Employee salaries

Interest on loans

Utilities (Such as electricity and internet)

Assuming you know your employee headcount for the year, and have your office space and insurance sorted, you can comfortably plan for these costs. As part of this process, it’s worth understanding key payroll terminology so that you don’t let your misconceptions or a lack of experience trip you up, especially when it comes to assessing staffing costs.

4. Add variable costs

Variable costs are usually thought of as discretionary expenses. As opposed to fixed costs, these are more fluid and can be tinkered with.

Examples of discretionary expenses include:

Marketing and advertising

Corporate investments and donations

Software subscriptions , particularly where they aren’t critical to running the business

Travel and client meetings

Office decor and renovations

Business tablets , laptops, mobile phones, and other hardware

“Discretionary” doesn’t mean that these costs are frivolous or unnecessary. A business won’t grow without marketing, and team perks can be a key contributor to keeping employees happy for longer.

But when building a business budget, these costs have to be justified more critically. And when you’re in danger of going over budget, variable costs are usually the first to be cut.

5. Forecast additional spending

Are there any one-off expenses on the horizon? These can include a serious merger or acquisition , consultant help to prepare for audit, or even a special event or party that doesn’t come around often.

If possible, try to set out these irregular expenses separately in your budget. You certainly need to account for them in your spending, but they won’t be a core piece for years to come.

You might also consider a “rainy day fund.” Because the only certainty is uncertainty, it pays to have some portion of your budget set aside in case unexpected events occur and you need a safety net.

6. Scrutinize cash flow

This is where the budget analysis starts. You should now have a clear record of expected revenue and expenses, and hopefully you even have a record of these for the previous period.

Was your spending as expected? Did you have consistent revenue across the last year, or can you spot seasonal effects?

“Cash flow” refers to the relationship between money coming in and going out. You want to know that you’re spending money you’ve budgeted for, and that income dips you can update your expenses to match.

Look for clear indicators that certain parts of your budget might need extra attention. You want to know the particular aspects of your business that impact the budget most heavily, and be prepared to adjust accordingly.

7. Make business decisions

Naturally, you now need to use all of the analysis and preparation you’ve done. And that means forming a clear spending plan for the future. The Balance has this very simple one.

Download these free marketing budget templates .

Of course, the hardest part of the whole process is deciding which projects or priorities get funding, and which don’t. This can be stressful, and we’ve included some best practices below to help. Most important is to try to remain consultative throughout - gather input and rely on the expertise of your skilled team members to guide you.

You’ll almost certainly make updates and changes throughout the year, so it’s important to rely on the data you have today, and to not get too bogged down.

8. Communicate it clearly

The final step is to share the budget with your teams and make sure they know what’s required of them. Chances are you’ll rely on many team leads to handle their own costs, and they need to have the tools and expectations to do this well.

Does everyone involved know how much they’re allowed to spend, and on what? And do they also know how to report their spending as they go?

If you can’t answer “yes” to both of those, you’ll likely struggle to adequately track and measure the effectiveness of your budget.

And then there’s the messaging. For many governments, “budget day” is the biggest day of the year. There’s a reason why political leaders take the messaging so seriously. And while you don’t need to go overboard, it makes sense to get your communication right too.

Business budgeting best practices

Now that we’ve set out the process, let’s also consider some principles to apply along the way. Here are a few excellent suggestions from around the web.

SCORE - Think assumptions before numbers

Obviously, your budget will be full of numbers and figures. But it’s often a great idea to start by clearly setting out what the budget is based on, built for, and how it should be interpreted.

Hal Shelton writes, “When you picture a budget, you likely see spreadsheets with many numbers. But more important than the numbers are the assumptions that drive the calculations.

“Therefore, the first page of your budget should be these assumptions — what products/services are being sold at what prices and volumes, and what the key drivers are for expenses, like the number of staff and locations, various marketing initiatives, etc.

“In essence, you have both an operations and finance budget, and the two are closely intertwined.”

inDinero - Consider your KPIs

It’s vital that your budget - especially the variable costs sections - reflect the overall goals of the company. So make an effort to tie expenditure back to those priorities, and track your progress as the budget rolls out.

“Key Performance Indicators (KPIs) can point you in the right direction when setting a budget. KPIs can help you plan the smaller details while simultaneously focusing on the big picture. The challenge is to determine what KPIs need to considered.

“Common KPIs for setting a budget plan often include:

Operating cash flow and expenses

Sales and marketing initiatives

Payroll expenses

Return on equity

Accounts payable and receivable

Turnover rate”

Just make sure that your KPIs are clear and can easily be measured.

Grasshopper - Avoid these three “don’t”s

It’s always good to have a few areas to watch out for. And even though you may already have these three factors in mind, they’re definitely worth repeating:

• Don't over-exaggerate estimated revenue and profit
• Don’t forget taxes, including: sales taxes, state and federal taxes
• Don’t forget seasonality – business could be going great one month and slow the next

These are classics for a reason.

Creately - Revisit regularly

A budget is definitely not “set it and forget it.” In fact, you need to check back, analyze, and update your spending as the year progresses.

“That’s why you should schedule budget reviews from time to time. I recommend starting with reviewing it every month and then switching to a more comfortable schedule. Every month review can help you notice the flaws of your plan (which is especially important if you don’t have much experience in this kind of thing) as well as understand how stable your business is.

“If you see that you don’t have to make changes often, you could start reviewing your plan every three or six months.”

You might even find that you have more available funds than you’d anticipated. And you need to need to know that early, while there’s still something you can do about it.

Business budgets go hand-in-hand with spend management

At this point, you know the ins and outs of effective business budgeting . The next step is actually using it for more effective company spend management. Consider the following:

How will you easily monitor where each payment goes?

Do team members have to manually update a spreadsheet to keep track?

Who has approval for specific payments, and do teams understand these rules?

Chances are, the answers aren’t entirely clear. And many businesses rely on manual processes and diligent employees to stay on top of costs.

Instead, look into good spend management tools . These apply your budgets to your spending methods. So you can have debit cards with limits that match the budget, and workflows that keep the appropriate budget manager in control of each payment.

Most importantly, every payment is logged, so you don’t have to keep Excel sheets up to date. This is company spending for finance teams that need control without being overbearing .

In short, it’s smarter company spending.

More reads on Finance strategy

7 ways to avoid costly payment delays

Reduce operational costs in 3 steps

The path to CFO: skills and qualifications for future CFOs

Get started with spendesk.

Close the books 4x faster , collect over 95% of receipts on time , and get 100% visibility over company spending.

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

Why Is Budgeting Important in Business? 5 Reasons

• 06 Jul 2022

There are few skills as critical to running a business as budgeting. Yet, over half of the executives surveyed in a 2019 McKinsey study report feeling dissatisfied with the transparency surrounding their organizations’ budgets.

Any employee—especially managers—should understand budgeting and how it can profoundly impact an organization.

Here’s a primer on the importance of budgeting in business.

Access your free e-book today.

What Is Business Budgeting?

Budgeting is the process of preparing and overseeing a financial document that estimates income and expenses for a period. For business owners, executives, and managers, budgeting is a key skill for ensuring organizations and teams have the resources to execute initiatives and reach goals.

A basic budget consists of projected income and expenses for a given period (for instance, the upcoming quarter or year). After expenses are subtracted from projected income, the leftover money can be allocated to projects and initiatives, ensuring you’re not planning to overspend.

Budgets from previous periods can be compared to the company’s actual financial allocation and performance, giving an idea of how close predictions were to actual spend.

For example, imagine you allocated $10 million for your company’s annual corporate social responsibility (CSR) project. Unforeseen circumstances caused it to run $1 million over budget, and that money had to come out of other projects’ budgets.

During the project’s postmortem, you ask questions like, “Why did we run over budget? Was this an issue of inefficiency or misallocation?” When creating the budget for next year, you use those insights to tighten the process and keep the project’s spend at $10 million or more accurately allocate funds to other projects.

Types of Budgeting

There are several budgeting types that each prioritize different factors when approaching a financial plan. These include:

• Zero-based budgeting , which sets each item at zero dollars at the start of periods before reallocating
• Static budgeting or incremental-based budgeting , which uses historical data to add or subtract a percentage from the previous period to create the upcoming period’s budget
• Performance-based budgeting , which emphasizes the cash flow per unit of product or service
• Activity-based budgeting , which starts with the company’s goals and works backward to determine the cost of attaining them
• Value proposition budgeting , which assumes no line item should be included in the budget unless it directly provides value to the organization

The right budgeting type varies by company and situation. If your organization is in financial distress, the zero-based method may be the best fit, as it starts from scratch each period. Trying out several methods is a good way to determine which is ideal; when doing so, ensure your entire organization is aligned.

Related: 6 Budgeting Tips for Managers

Why Is Budgeting Important?

Budgeting involves number-crunching, attention to detail, and making informed decisions about fund allocation—but it’s well worth the effort. Here are five reasons budgeting is important in business.

1. It Ensures Resource Availability

At its core, budgeting’s primary function is to ensure an organization has enough resources to meet its goals. By planning financials in advance, you can determine which teams and initiatives require more resources and areas where you can cut back.

If, for instance, your team needs to hire an additional employee to scale efforts, budgeting for that in advance can allow you to plan other spending.

2. It Can Help Set and Report on Internal Goals

Budgeting for an upcoming period isn’t just about allocating spend; it’s also about determining how much revenue is needed to reach company goals.

You can use budgeting to set company-wide and team financial goals that align with them. This is especially prominent when using activity-based budgeting, but it’s beneficial no matter which type you use.

Financial goals should be attainable enough that you count on them to inform the rest of your budget allocations. Your goals inform the expenses needed to reach them and vice versa.

You can also use budgeting to update employees on progress and revisit the next period’s goals. For instance, if your company aimed to gain 10,000 new users this past year but fell short by 4,000, what could you have done differently? Does the initiative require fund redistribution? What resources could have propelled progress?

Tracking progress, or lack thereof, allows you to align your team and plan for growth in the next period.

3. It Helps Prioritize Projects

A byproduct of the budgeting process is that it requires prioritizing projects and initiatives. When prioritizing, consider the potential return on investment for each project, how each aligns with your company’s values, and the extent they could impact broader financial goals.

The value proposition budgeting method forces you to determine and explain each line item's value to your organization, which can be useful for prioritizing tasks and larger initiatives.

4. It Can Lead to Financing Opportunities

If you work at a startup or are considering seeking outside investors , it’s important to have documented budgetary information. When deciding whether to fund a company, investors highly value its current, past, and predicted financial performance.

Providing documents for previous periods with budgeted and actual spend can show your ability to handle a company’s finances, allocate funds, and pivot when appropriate. Some investors may ask for your current budget to see your predicted performance and priorities based on it.

5. It Provides a Pivotable Plan

A budget is a financial roadmap for the upcoming period; if all goes according to plan, it shows how much should be earned and spent on specific items.

Yet, the business world is anything but predictable. Circumstances outside your control can impact your revenue or cause priorities to change at a moment’s notice.

Consider the onset of the coronavirus (COVID-19) pandemic in 2020. The economic impact of travel bans, lockdowns, and other safety precautions was far-reaching and unexpected. Executives were forced to quickly—yet thoughtfully—rework budgets to account for major losses and newfound safety concerns.

More than two years later, executives are rethinking their budgeting procedures to make it easier to pivot if needed. One shift noted by McKinsey is the turn toward zero-based budgeting to determine the minimum resources necessary to survive as a business—should the circumstances call for it.

A budget gives you a plan; maintaining an agile mindset enables you to pivot that plan and help lead your organization through turbulent times.

Learn to Budget Effectively

Anyone can learn to budget effectively and reap the benefits. To build a foundation of financial literacy , gain a deeper understanding of the levers that impact an organization’s finances, and discover how budgeting can enable you to become a better leader and manager, consider taking an online financial accounting course .

Do you want to take your career to the next level? Explore Financial Accounting —one of three online courses comprising our Credential of Readiness (CORe) program —which teaches the key financial topics needed to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

About the Author

What's Planergy?

Modern Spend Management and Accounts Payable software.

Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing.

We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

Cristian Maradiaga

Download a free copy of "indirect spend guide", to learn:.

• Where the best opportunities for savings are in indirect spend.
• How to gain visibility and control of your indirect spend.
• How to report and analyze indirect spend to identify savings opportunities.
• How strategic sourcing, cost management, and cost avoidance strategies can be applied to indirect spend.

Strategic Budgeting: What Is It, Process, and Best Practices

• Written by Lyle Del Vecchio
• 17 min read

KEY TAKEAWAYS

• Strategic budgeting combines long-term budgeting with an organization’s strategic priorities.
• For the greatest chance of success, senior leadership should be involved in setting goals and determining success metrics that are aligned to budgets.
• Being agile enough to make adjustments as circumstances change is key.

Budgeting is a critical financial planning and management aspect for individuals, businesses, and organizations.

Among the various types of budgeting, strategic budgeting stands out as a powerful tool for achieving long-term financial goals.

This comprehensive guide will delve into strategic budgeting, its importance, the steps involved in creating a strategic budget, benefits, challenges, best practices, and help identify differences between forecasting and budgeting.

What is Strategic Budgeting?

Strategic budgeting is a process that combines budgeting with strategic planning, aligning an organization’s financial resources with its long-term objectives.

It focuses on allocating resources effectively, prioritizing investments, and ensuring financial stability while pursuing growth and innovation.

Different Types of Budgeting Methods

There are various different types of budgets and budgeting models in accounting .

Incremental Budgeting

Incremental budgeting is a traditional approach to budget planning that involves taking the previous year’s annual budget and adjusting it based on factors such as inflation, cash flow, or other changes in the organization’s financial landscape.

This method is simple to implement and maintain, relying on historical data and relatively minor adjustments.

However, incremental budgeting may not account for changing priorities, short-term expenditures, or new opportunities, limiting its effectiveness in some situations.

Zero-Based Budgeting

Zero-based budgeting is a more rigorous approach that requires every expense to be justified each budgeting period, starting from zero.

This method encourages efficiency and reduces unnecessary spending by forcing organizations to evaluate each expenditure and its contribution to its goals carefully.

While zero-based budgeting can lead to more effective resource allocation, it can be time-consuming and challenging to implement, as it requires a comprehensive review of all expenses during each budgeting cycle.

Activity-Based Budgeting

Activity-based budgeting focuses on the cost of activities and processes required to achieve specific objectives.

By examining the relationship between costs and outcomes, activity-based budgeting helps organizations identify inefficiencies, allocate resources more effectively, and improve overall financial performance.

This type of budgeting can be complex and require significant data analysis, making it more suitable for organizations with well-defined processes and the ability to gather detailed cost information.

Strategic Budgeting

Strategic budgeting, as previously mentioned, is a method that combines strategy and budget planning, emphasizing long-term objectives and resource allocation.

This approach ensures that an organization’s financial resources are aligned with its overarching goals, promoting growth, innovation, and financial stability.

By focusing on long-term priorities and investments, strategic budgeting helps organizations make informed decisions about resource allocation and adapt to changing market conditions.

Why are Budgeting Strategies Important?

Budgeting strategies like strategic budgeting help organizations make informed decisions about resource allocation, prioritize investments, and ensure financial stability.

They provide a roadmap for achieving long-term goals, promoting growth and innovation while managing risks and uncertainties.

The Strategic Budgeting Process

Creating a strategic budget involves the following steps:

Set Long-Term Goals and Objectives

Begin the strategic budgeting process by defining your organization’s long-term goals.

These goals can include market expansion, new product development, revenue growth, or other objectives that drive your organization’s success. Setting clear and measurable goals will provide the foundation for the rest of the budgeting process .

Identify Key Initiatives

With your long-term objectives, determine the strategic initiatives required to achieve these goals.

Such initiatives may include marketing campaigns, research and development projects, or hiring new talent. Identifying key initiatives helps ensure that your budget is focused on activities that contribute directly to your organization’s long-term success.

Develop Financial Projections

Next, develop financial projections for each identified initiative. Estimate the costs associated with each initiative and project revenues based on market trends, historical data, and growth expectations.

Accurate financial projections are essential for allocating resources effectively and setting realistic expectations for the outcome of each initiative.

Allocate Resources

With financial projections in hand, allocate financial resources to each initiative. Prioritize initiatives with the highest potential impact on your long-term objectives, ensuring that your budget is aligned with your organization’s goals.

Resource allocation is a critical step in the strategic budgeting process, as it determines where your organization will invest its time, effort, and money.

Monitor Progress

Finally, regularly review your strategic budget versus actual expenditure and monitor progress towards your long-term objectives. Compare actual results with your projections and adjust as needed to stay on track.

Monitoring progress is crucial for maintaining accountability, identifying areas for improvement, and ensuring that your strategic budget remains aligned with your organization’s goals. You can make data-driven decisions that drive your organization forward by consistently evaluating your budget’s performance.

Benefits of Strategic Budgeting

Aligning resources with long-term strategic goals.

Strategic budgeting allows organizations to focus on their most important initiatives, ensuring that resources are allocated effectively and efficiently.

By aligning financial resources with long-term goals, organizations can prioritize investments that contribute directly to their success, making the most of their available resources.

Encouraging Innovation and Growth

One of the key benefits of strategic budgeting is its ability to promote investment in new opportunities and support long-term growth.

Organizations can continually evolve, adapt, and stay competitive in their respective industries by identifying and prioritizing initiatives that drive innovation and expansion. An agile business can be ready to seize opportunities .

Improving Decision-Making

Strategic budgeting provides a clear roadmap for achieving an organization’s objectives, which helps improve decision-making at all levels.

With a well-defined budget, organizations can make informed decisions about investments and resource allocation, ensuring that every financial decision supports their long-term goals and overall strategic vision.

Enhancing Financial Stability

Strategic budgeting contributes to an organization’s financial health and stability by prioritizing investments and managing business risks .

Organizations can identify areas where resources may be better allocated, reduce unnecessary spending through strong budgetary control and spend control , and ensure they are prepared to weather any financial challenges that may arise.

This proactive approach to financial management helps organizations maintain a strong financial position and achieve their long-term objectives.

Challenges of Strategic Budgeting

Ensuring accurate projections.

One of the main challenges of strategic budgeting is developing accurate financial projections, which can be difficult in uncertain or rapidly changing markets.

Organizations must carefully analyze historical data, market trends, and other relevant factors to create realistic budget forecasting projections that accurately reflect their long-term goals and objectives.

When planning your projections you should also ensure you are budgeting for variable expenses , if not planned for these can easily blow your budget.

Inaccurate projections can lead to poor decision-making and resource allocation, ultimately undermining the effectiveness of the strategic budget.

Fostering Collaboration

Creating a strategic budget requires input and cooperation from various organizational departments and stakeholders. This involves other departments collaborating effectively with finance .

This collaboration can be challenging, as different departments may have competing priorities, differing opinions on resource allocation, or varying levels of understanding about the organization’s overall strategy.

To overcome this challenge, organizations must foster a culture of open communication, shared goals, and commitment to the strategic budgeting process.

Maintaining Ongoing Monitoring

Effective strategic budgeting demands regular reviews and adjustments, which require time and effort from all involved parties.

Organizations must continually monitor their progress, compare actual results with projections, and make necessary adjustments to stay on track.

Having real-time spend visibility , carrying out budget variance analysis , reviewing spend analysis on procurement activities , and following budget reporting best practices by using a dedicated spend management software that incorporates business budgeting software , like Planergy, can help.

This ongoing monitoring can be time-consuming, especially if managed manually, but it is crucial for ensuring that the strategic budget remains aligned with the organization’s long-term goals and objectives.

Implementing tools and processes to streamline budget monitoring and reporting can help mitigate this challenge and promote a more efficient approach to strategic budgeting.

Regardless of business size, the right budgeting strategy can be the difference between success and failure.

Best Practices for Strategic Budgeting

Involving the leadership team and all stakeholders.

One of the most important best practices for strategic budgeting is to engage key stakeholders in the business budget planning process . This ensures buy-in and commitment from all parties involved, fostering collaboration and effective decision-making.

Encourage open communication, solicit input and feedback, and ensure that all stakeholders understand the organization’s long-term goals and the role of the strategic budget in achieving those objectives.

Leveraging Historical Data and Market Research

Leveraging historical data and market research to create accurate financial projections and assumptions is crucial.

Analyze past performance, market trends, and industry insights to make informed decisions about resource allocation and expected outcomes.

You can increase your strategic budget’s accuracy and effectiveness by grounding your strategic budget in data-driven insights.

Using the Right Tools

It’s important to use the right budgeting tools, as they play a crucial role in ensuring the accuracy and efficacy of the budgeting process.

Effective tools streamline data management, facilitate stakeholder collaboration, and allow organizations to monitor their financial performance easily.

While Excel might be an excellent option initially for smaller companies, its limitations become apparent in larger and more complex organizations.

As organizations grow, they require more advanced budgeting solutions and controls to handle increased data volume, automate repetitive tasks, and provide real-time insights into financial performance.

By investing in the right budgeting tools, organizations can significantly improve the efficiency and effectiveness of their budgeting process, ultimately leading to better decision-making, resource allocation, and financial success.

Being Realistic and Conservative

When developing financial projections and assumptions, it’s essential to be realistic and conservative.

Avoid overly optimistic projections that may be difficult to achieve, and instead, focus on attainable goals that align with your organization’s goals for the coming year and long-term objectives.

Additionally, build contingencies into your budget to account for unforeseen events or challenges, ensuring your organization is prepared to adapt and respond to changing circumstances.

Implementing a Rolling Budget

Instead of relying on a traditional annual budget, consider implementing a rolling budget combined with rolling forecasts that is continually updated and extended as new information becomes available.

A rolling budget allows organizations to respond more quickly to changes in the market or their financial situation, promoting agility and adaptability.

Regularly updating and revising your strategic budget ensures it remains aligned with your organization’s evolving goals and priorities.

Budgeting vs. Forecasting: Key Differences

Budgeting: creating a financial plan.

Budgeting is the process of creating a detailed financial plan for a specific period, usually a fiscal year, and allocating resources to achieve specific organizational goals.

The budget serves as a roadmap for financial decision-making, guiding how funds should be spent and outlining expected income and expenditures.

Budgets are typically fixed, meaning they remain relatively unchanged throughout the budget period, and are used to assess performance by comparing actual results against the planned figures.

Key aspects of budgeting include:

• Setting financial goals and objectives
• Allocating resources to meet those objectives
• Establishing spending limits and guidelines
• Monitoring progress and comparing actual results against the budget

Forecasting: Estimating Future Financial Outcomes

In contrast, forecasting involves estimating future financial outcomes based on historical data, market trends, and various assumptions. Spend forecasting helps inform budget planning.

Forecasts are more flexible than budgets, as they are continually updated and revised as new information becomes available or circumstances change.

Forecasting helps organizations anticipate future performance, identify potential risks and opportunities, and make proactive decisions to maximize success.

Key aspects of forecasting include:

• Analyzing historical data and trends
• Identifying potential risks and opportunities
• Estimating future revenues and expenses
• Adjusting forecasts as new information becomes available

Embrace Strategic Budgeting for Long-Term Success

Strategic budgeting is a powerful tool for aligning an organization’s financial resources with its long-term objectives.

By following the steps outlined in this guide and implementing best practices, businesses and organizations can effectively create and manage their operating budgets, achieving growth, innovation, and financial stability.

What’s your goal today?

1. use planergy to manage purchasing and accounts payable.

• Read our case studies, client success stories, and testimonials.
• Visit our Spend Analysis Software page to see how Planergy can empower you to get more value from your spend.
• Learn about us, and our long history of helping companies just like yours.

2. Download our “Indirect Spend Guide”

3. learn best practices for purchasing, finance, and more.

Browse hundreds of articles , containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles.

Related Posts

• Business Budgeting

Budgeting Process: Steps and Best Practices for Planning a Budget

• 18 min read

7 Tips For Managing Project Budgets Successfully

• 19 min read

Bottom Up Budgeting Vs Top Down Budgeting: Pros and Cons

Procurement.

• Purchasing Software
• Purchase Order Software
• Procurement Solutions
• Procure-to-Pay Software
• E-Procurement Software
• PO System For Small Business
• Spend Analysis Software
• Vendor Management Software
• Inventory Management Software

AP & FINANCE

• Accounts Payable Software
• AP Automation Software
• Compliance Management Software
• Business Budgeting Software
• Workflow Automation Software
• Integrations
• Reseller Partner Program

Business is Our Business

Stay up-to-date with news sent straight to your inbox

Sign up with your email to receive updates from our blog

This website uses cookies

We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you’ve provided to them or that they’ve collected from your use of their services.

Read our privacy statement here .

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

An Agile Approach to Budgeting

• Steve Berez

Featuring Bain & Company partners Sarah Elk and Steve Berez, coauthors of Doing Agile Right: Transformation Without Chaos The uncertainties due to the pandemic are making the annual budgeting and planning process especially challenging.  But even in typical times, most planning and budgeting processes are frustrating. They start five or six months early with promises […]

Featuring Bain & Company partners Sarah Elk and Steve Berez , coauthors of Doing Agile Right: Transformation Without Chaos

The uncertainties due to the pandemic are making the annual budgeting and planning process especially challenging.  But even in typical times, most planning and budgeting processes are frustrating. They start five or six months early with promises of visionary transformations that quickly give way to tedious templates, endless financial forecasts, and leaders haggling over targets and battling for resources.

Sarah Elk and Steve Berez of Bain & Company have found that instead of the conventional predict, command, and control approach to planning and budgeting, companies should focus instead on learning, adapting, and growing.

On November 11 th , 2020, in a live HBR webinar, Elk and Berez will discuss why now is the time for companies to move to an agile approach to planning which includes:

• Changing the purpose of planning and budgeting
• Shifting the focus from financial precision to strategic success
• Planning faster and more frequently

Elk and Berez will go into detail on each focus area and will show how to make the transition to a budgeting and planning process that centers on what truly creates value. Join Elk, Berez, and HBR on November 11 th to learn more.

• Sarah Elk is a partner in Bain & Company’s Chicago office and heads its global operating model practice. She is also a co-author of Doing Agile Right: Transformation Without Chaos (Harvard Business Review Press, 2020).
• Steve Berez  is a partner in Bain & Company’s Boston office and a founder of its enterprise technology practice. He is also a co-author of Doing Agile Right: Transformation Without Chaos (Harvard Business Review Press, 2020).

Partner Center

Sr. Financial Analyst - Clinical Trials

Financial analysts.

• 1 Boston Medical Center Place, Boston, Massachusetts

Position: Senior Financial Analyst, Clinical Trials Office

Location: Boston, MA      

Schedule: 40 hours per week, Remote

POSITION SUMMARY:

Facilitates the financial management associated with planning, negotiating, setting up, managing, and closing out clinical research studies. Key responsibilities include evaluating study protocols and developing accurate budgets. Meeting with research personnel to identify/quantify information impacting clinical trial finances, distinguish between billable (standard of care or SOC) and non-billable costs and ensure adherence to Federal compliance in the budgeting process. This person serves as a primary resource on business aspects of clinical research and works with the study teams to develop coverage analyses, clinical trial budgets, and reports to track and monitor receivables. Creates and analyzes clinical trial financial reports and ensures financial information has been recorded accurately.

JOB RESPONSIBILITIES:

Medicare Coverage Analysis (MCA)

• Review complex study protocols, sponsor agreements, informed consent forms and related documents as needed. Determine whether a study is a “qualifying clinical trial”
• Maintain a “library” of information on standards of care, National Coverage Decisions (NCDs), Local Coverage Determinations (LCDs), etc. Develop coverage grids
• Analyze Medicare benefit policies, coverage determinations, and medical practice guidelines related to study specific interventions
• Collaborate with the Principal Investigator and the clinical research team to finalize the MCA and designate funding sources for research costs
• Provide internal training and education on Medicare Coverage Analysis as needed
• Works with the Principal Investigator and the clinical trial team to develop an internal budget that includes all costs applicable to the trial
• Reviews patient care charges associated with each clinical trial on a periodic basis. Works with Patient Billing and post-award personnel in Research Administration to ensure that charges for all patient procedures are treated appropriately
• Negotiates with sponsors to reach agreements appropriate to the costs of the trial

Financial Management

• Account Setup, sponsor invoicing, project accounting/reporting
• Supports the study team in the financial management of clinical trials originating from federal, foundation, and industry funds.
• Reviews expenditures against budgeted amounts and against revenues
• Monitors participant accrual, activity and related revenue. Monitors trial accounts and assists resolution of issues
• Assists PIs and research teams with the allocation of trial personnel costs and trains clinical trial personnel in the fiscal operations of research
• At the completion of the trial, supports post-award personnel in the review of expenditures and receipts.

Reporting and Analysis

• Prepares analyses and reports of clinical trial financials for presentation to Director, Clinical Trial Office (CTO), study teams, Patient Financial Services, and others as requested
• Assists Principal Investigators with budget monitoring and prepares projections.
• Delivers timely accurate clinical trial financial information to Director, CTO
• Beyond reporting, provides insight and analysis as to which specific departments or specific clinical trials are not covering costs, covering costs, or profitable

Systems Support

• Primary user of Lawson LBI, SDK, and the Boston Medical Center CTO Clinical Trials Management System (CTMS)
• Provides education and assistance as needed to new users and study team members in the use and functionality of the CTMS

The above statements in this job description are intended to depict the general nature and level of work assigned to the employee(s) in this job.  The above is not intended to represent an exhaustive list of accountable duties and responsibilities required

JOB REQUIREMENTS

• Bachelor's Degree required, with preference for concentration in Economics, Business, Accounting or Finance. Master's Degree highly desired.

EXPERIENCE:

• Minimum of five years professional experience in research administration or a financial analysis/ accounting function.

KNOWLEDGE AND SKILLS:

• Advanced MS Excel, Word, Access, and PowerPoint skills. Experience with or ability to learn Lawson LBI, SDK, and additional application systems.
• Highly analytical thinking with demonstrated talent for identifying, scrutinizing, improving, and streamlining complex work processes.
• Strong financial management/forecasting skills. Ability to interpret financial data and operating metrics.
• Detail oriented with strong organizational skills. Ability to multitask and prioritize work is essential.
• Ability to meet deadlines and maintain sensitive and confidential information.
• Excellent written and verbal communication and interpersonal skills.

JOB BENEFITS:

• Competitive pay
• Tuition reimbursement and tuition remission programs
• Highly subsidized medical, dental, and vision insurance options
• Career Advancement/Professional Development: Access a wealth of ongoing training and development opportunities that will not only enhance your skills but also expand your knowledge base especially for individuals pursuing careers in medicine or biomedical research.
• Pioneering Research: Engage in groundbreaking research projects that are driving the forefront of biomedical science.

ABOUT THE DEPARTMENT:

As the primary teaching hospital for Boston University Chobanian & Avedisian School of Medicine and BU schools of public health and dentistry, intellectual rigor shapes our inquiries. Our research is led by a belief that skin color, zip code, and financial circumstances shouldn’t dictate health.

Boston Medical Center is an Equal Opportunity/Affirmative Action Employer. If you need accommodation for any part of the application process because of a medical condition or disability, please send an e-mail to  [email protected]  or call 617-638-8582 to let us know the nature of your request.

Equal Opportunity Employer/Disabled/Veterans

Privacy policy

By clicking Submit, you acknowledge that you are willing to receive messages from Boston Medical Center relating to the status of your application or other recruitment related information to any mobile / cell phone number entered in the form above. You can easily opt-out of receiving messages by replying STOP to any messages you receive.

Not the right fit? Check out these other jobs

Materials support assistant 40 hrs, days, rotating weekends & holidays, clinical perfusionist, research assistant, infectious diseases (per diem), unit coordinator, medical surgical, 24 hours (rotate day/evening, e/o weekend/holiday), certified nursing assistant, surgical step down, 24 hours (days, e/o weekend), certified nursing assistant, adult ed, 36 hours (nights, e/o weekend), refer a friend.

Your information:

Apply for this job now

EEO & Accommodation Statement Boston Medical Center is an equal employment/affirmative action employer. We ensure equal employment opportunities for all, without regard to race, color, religion, sex, national origin, age, disability, veteran status, sexual orientation, gender identity and/or expression or any other non-job-related characteristic. If you need accommodation for any part of the application process because of a medical condition or disability, please send an e-mail to [email protected] or call 617-638-8582 to let us know the nature of your request

E-Verify Program Boston Medical Center participates in the Electronic Employment Verification Program. As an E-Verify employer, prospective employees of BMC must complete a background check and receive medical clearance before beginning their employment at the hospital.

Federal Trade Commission Statement: According to the FTC, there has been a rise in employment offer scams. Our current job openings are listed on our website and applications are received only through our website. We do not ask or require downloads of any applications, or “apps” job offers are not extended over text messages or social media platforms. We do not ask individuals to purchase equipment for or prior to employment. To avoid becoming a victim of an employment offer scam, please follow these tips from the FTC: FTC Tips

Join the BMC Talent Community  

Before you go, don't forget to join our talent community!

We use cookies to make your interactions with our website more meaningful. They help us better understand how our websites are used, so we can tailor content for you. For more information about the different cookies we are using, read the Privacy Statement . By continuing to navigate the site, you agree to the use of cookies on our behalf.

Arizona Legislature: New state budget approved, will go to Gov. Hobbs for signature

The Arizona Legislature moved quickly this week to pass a $17.8 billion spending plan for next year following negotiations between Democratic Gov. Katie Hobbs and Republican leaders in the House and Senate.

Many Democratic lawmakers initially objected to what Hobbs and the leaders left out of the budget, but most fell in line and ultimately supported the deal, even if under protest. Still other top Democratic officeholders and some Democrat-aligned groups also came out against it.

Arizona Republic and azcentral.com reporters are covering the latest developments.

More on budget: AZ budget plan moving at warp speed as Dems object to plan from Hobbs, GOP leaders

House passes budget bill

The Arizona House of Representatives has passed all of the bills related to the budget, which now goes to Gov. Katie Hobbs for her signature.

Hobbs issued a statement after the House finished its work.

“I’m glad the House passed the bipartisan budget and I look forward to signing it into law," Hobbs said. "Not everybody got what they wanted, but I’m thankful legislative leaders were able to set aside their differences, compromise, and support a bipartisan deal that makes historic investments in affordable housing, builds roads, bridges, and public transit, expands access to health insurance for Arizona’s children and creates critical new ESA accountability measures."

— Ray Stern

New effort to study school voucher program

House Speaker Ben Toma, R-Glendale, and Minority Leader Andrés Cano, D-Tucson, announced a bipartisan effort to increase accountability for the state’s expanded private-school vouchers on the heels of heavy criticism of the voucher program by Democrats in the House and Senate.

The “House Ad Hoc Committee on Empowerment Scholarship Accounts Governance and Oversight,” created with agreements by House Republicans and Democrats, will help “manage a growing and complex program,” according to an announcement from the legislative leaders on Wednesday.

The study committee will include Gov. Katie Hobbs and state Superintendent of Public Instruction Tom Horne (or their designated representatives), two House members from each party and two members of the public with related experience. They will seek information from a range of community members and experts to review details about ESA students, including their number, disabilities, English-language abilities, previous public-school attendance, and the total yearly ESA award amount for each student, among other things.

A report on the committee’s findings this year is expected by Dec. 31.

What's in Arizona's state budget? Money for families, education, housing, water and more

News of the study committee followed attempted amendments to the K-12 budget bill by Democratic Rep. Nancy Gutierrez, D-Tucson, that would have temporarily halted new enrollment in the ESA program and paused enrollment if it exceeded 69,000 students.

More than 55,000 students are currently enrolled in the program.

Unfinished business on AHCCCS, medical boards

Left undone during the flurry of budget work was a vote that has the state's Medicaid agency, AHCCCS, headed for expiration as of July 1.

The Senate Appropriations Committee killed a bill that would have continued the agency until 2029. Also included in Senate Bill 1736 were provisions to extend the Board of Dental Examiners and the Board of Massage Therapy for two years, with six year extensions for the Naturopathic Physicians Medical Boardand the Optometry Board. Those extensions also failed on the tie vote. (Bills don't pass if there is a tie.)

Senate President Warren Petersen, R-Gilbert, said the agencies won't die, but suggested there's no urgency. Although the bill ends AHCCCS as of July, Petersen said lawmakers could wait until the start of 2024, when the money dries up.

— Mary Jo Pitzl

House starts deliberation on budget

The state House of Representatives started the preparation work for state budget bills Wednesday following approval of the $17.8 billion budget by the state Senate in the wee hours of the morning.

It remains unknown if the budget and its House versions of 17 activating bills, plus amendments, will find the same support in the House as the budget found in the Senate. All 16 Senate Republicans and most Democrats voted for the Senate budget bills despite early indications of a revolt among Democrats. They finished just before 5 a.m.

Critics of the budget negotiated by Republican leaders and Democratic Gov. Katie Hobbs expressed concern about several aspects of the plan, especially the lack of a limit for the Empowerment Scholarship Account private-school vouchers that some say could result in a near-future fiscal catastrophe for the state.

House members began their day at about 10 a.m. with a Committee of the Whole session including discussion of the budget bills and offered amendments. Once those are done, House members are expected to move into final votes for the bills, and if passed they would then go to Hobbs for a likely signature.

Hobbs praises budget after Democrats fall in line

Gov. Katie Hobbs early Wednesday praised the budget that passed the Senate with bipartisan votes. 

“Today we showed Arizonans we can reach across the aisle, compromise and make government work," the governor said in a statement. “I am glad Democrats and Republicans in the Arizona Senate came together to pass budget bills that make historic investments in affordable housing, build roads, bridges and public transit, invest in our tribal communities, and expand access to health insurance for children.”  

She said she looked forward to “continuing to partner with legislators of both parties to build an Arizona that works for all of our communities.” 

Senate Democrats who objected to the spending plan on Tuesday largely ended up voting for it hours later, under protest and threat that their priorities might be stripped from the ledger. 

— Stacey Barchenger

Senate passes budget package with Democratic support

The state Senate approved a 17-bill budget package early Wednesday with bipartisan support that belied the discontent Democrats have voiced about the process.

All bills passed with more than two-thirds support of the 30-member chamber. Sixteen Republicans and a rotating cast of Democrats voted for the $17.8 billion plan that will fund government operations for the year beginning July 1.

The passage with bipartisan support is a win for Gov. Katie Hobbs and Senate President Warren Petersen, R-Gilbert. They, along with House Speaker Ben Toma, R-Glendale, negotiated the budget over months of meetings. Democrats were not brought in until the final weeks.

“25 ayes, 5 nays — bipartisan,” Petersen said as the vote on the main budget bill concluded around 4:30 a.m.  “Whoo! That sounds like a success to me.”

He took offense at Democratic leader Sen. Mitzi Epstein’s blistering critique of the budget process, even as she ended up voting for it.

“It’s a really bizarre thing to say I hate this budget and I vote yes,” Petersen said.

Epstein said Democrats were told Tuesday that if they didn’t vote for the budget, the $426 million in funding that Senate Democrats were able to direct to favored causes would get rescinded and redirected to GOP priorities.

Asked if she felt forced to vote for the spending plan, she replied, “Pretty much.”

Epstein added, however, that the budget had a lot of “great things” in it, including money for homeless services, a $150 million infusion into the Housing Trust Fund and a nearly 7% boost in K-12 funding for the coming year.

She criticized the Republicans for using all of the $2.5 billion surplus without leaving any in reserve for the next year. For the first time in years, the budget did not include a deposit into the state’s Rainy Day Fund. Hobbs had requested a $250 million addition to the fund, but it did not survive budget negotiations.

The budget package moves to the House of Representatives, which is expected to vote on the package Wednesday and send it to Hobbs.

How to keep senators in line? Threaten a loss of money

Senators who don't fall in line and vote for the budget have a sword dangling over them.

Those who vote against the plan were told their "asks" would get stripped from the budget in a provision that Gov. Katie Hobbs knew about, said Senate President Warren Petersen. The warning applies to Republicans and Democrats, he said.

"I believe our votes are still intact," Petersen said of the Republican members. "There are a lot of bipartisan asks in there. If they don’t vote for it, their stuff is coming out."

Republican senators got $30 million apiece to spend, while representatives got $20 million. The budget is replete with pet projects from individual districts, like upgraded rodeo grounds in Prescott and dozens of infrastructure projects.

Sen. Catherine Miranda, D-Phoenix, said Democrats got a similar deal: House and Senate Democrats were allowed to spend $400 million "plus" that was divvied up by the caucuses instead of each member getting a firm amount. She also heard Petersen's caveat that not voting for the budget meant those asks would go away.

Miranda emphasized that the budget has positive aspects, though she expressed disappointment about how public schools were treated — mainly in terms of future fiscal problems because of the expanded ESA voucher program.

As Fontes seeks security money, he reports threat in D.C. elevator

While lawmakers were casting their first votes on the budget bills Tuesday, Secretary of State Adrian Fontes’ office notified reporters about an incident that underscored the secretary's request for security funding.

Fontes, according to his spokesman Paul Smith-Leonard, was cornered in a Washington, D.C., elevator Monday by an unknown individual. The secretary felt threatened and reported the matter to the Arizona Department of Public Safety as well as to the Arizona Counterterrorism Information Center.

Smith-Leonard did not have further details about what the individual said, if anything, nor did he know if Fontes was alone in the elevator nor why the matter was not reported to D.C. police.

Fontes has lobbied Arizona lawmakers and Gov. Katie Hobbs for more budget money, including funding for a personal security detail.

“These are situations that unfortunately are not uncommon for the secretary,” Smith-Leonard said.

Fontes was in D.C. for the Center for Election Innovation & Research conference, which was getting staked out by election deniers. Maricopa County Supervisor Bill Gates was approached by Laura Loomer, who casts herself as a conservative and investigative reporter who calls out people she believes are working to rig elections.

Mayes' premature letter leads to spat with GOP

A letter sent Saturday from Arizona Attorney General Kris Mayes threatening to sue over the state’s budget plan, which wasn't made public until days later, has prompted a spat between the Democrat and Republican lawmakers. 

GOP lawmakers say the letter was premature. Mayes had written that she was “prepared to go to court” to ensure her office received the state's share of a $1.1 billion settlement with opioid manufacturers. Her letter cited “talk of the Legislature sweeping” her authority to control those funds. 

When the budget was revealed on Monday, however, no such sweeping was part of it. 

Sen. Jake Hoffman, R-Queen Creek, chastised Mayes’ lobbyist Amy Love during a committee meeting Monday over the letter. Hours later, Rep. David Livingston, R-Peoria, followed up with his own letter to Mayes. 

“Senator Hoffman rightly expressed his concern that you threatened litigation over a budget you had not yet even seen and based only on rumors, and perhaps your own misplaced speculation,” Livingston wrote. “I encourage you to learn the facts in the future before wasting taxpayer money and resources on politicized demand letters.” 

Public school teachers tell Hobbs to seek cap on vouchers

Katie Hobbs got some of her strongest support in her run for governor from public school educators. Now, they're asking her to step in and tap the brakes on the state's universal voucher program.

Specifically, they want the governor to impose a 20% cap on voucher enrollment growth for three years, a demand they made at a Tuesday afternoon news conference.

Such a cap would stabilize growth, said Beth Lewis, director of Save Our Schools. It's unclear how the governor, who has signed off on the budget she negotiated with GOP leaders, would do so at this stage, other than to veto the budget.

Lewis and others had strong criticism for Republicans who have championed the voucher program but held their fire against Democrats. Lewis said she and other public school advocates still have faith in the governor, but hope for more.

"Everybody here has knocked on hundreds if not thousands of doors for this governor," Lewis said at a Tuesday news conference. "We expected real support for the schools, not lip service."

The voucher program has grown more than fourfold, to 55,000 students, since universal expansion was approved 10 months ago. Meanwhile, the average scholarship award has dropped by a third, to $10,000, according to Arizona Department of Education data.

Fast-tracked budget plan passes first hurdles

A proposed state budget cleared its first hurdles on Tuesday at the Legislature and is on a fast track for a final vote on Wednesday — with nearly no support from Democrats so far.

The $17.8 billion spending proposal passed both the House and Senate Appropriations committees on the strength of Republican votes, with all but one Democrat voting against the deal that Democratic Gov. Katie Hobbs negotiated with GOP leaders .

That sets the stage for the full House and Senate to vote on the 16-bill package as early as Wednesday, with the Senate planning to start voting soon after midnight Tuesday.

Rep. David Livingston, R-Peoria and chairman of the House Appropriations Committee, said he is confident there are unanimous Republican votes for the budget, which would allow it to reach Hobbs' desk without any Democratic backing.