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Edit Comment Close Premium member Presentation Transcript Strategic Planning : Strategic Planning Resource Person: Gerry Padernal Preparing and Managing Departmental Budgets : Preparing and Managing Departmental Budgets How to tell the money where to go & stop wondering where it went Slide 3: Learning Objectives Understand budgeting How to budget How to manage budgets Slide 4: Budgeting is part of Planning ISO steps for Continual Improvement What is budgeting? : What is budgeting? What is a budget? Definition : Definition Budget (from French bougette, purse) Slide 7: Definition It is a list of all planned expenses & revenues Slide 8: A BUDGET is an organizational plan stated in monetary terms. Definitions : Definitions The process of making the list is BUDGETING Slide 10: Purpose of Budgeting Purpose of budgeting is to: Provide a forecast of revenues and expenditures (i.e. a model of how a business might perform financially speaking if certain strategies, events and plans are carried out) It is a MODEL! Slide 11: To assess performance by comparing actual operating results against the forecast / budget. (Model vs. Actual) It is a METRIC! Simply put: : Simply put: A budget is a practical means of telling the money where to go, rather than simply wondering where it went. Telling the money where to go And knowing where it went Slide 13: Surely, there are many who wonder where the money went. Because they were spending without a plan in mind. Without a budget! Other uses : Other uses For a loan or other financing for business purposes (One is expected to produce a business plan, which includes information concerning projected income and expenses.) Caveat! : Caveat! No business should ever proceed without planning, and a budget is the financial plan for conducting business in the near future. Budgeting is key! Slide 16: Now: Budgeting! Types of Budgets : Types of Budgets An operating budget A capital budget A cash budget Slide 18: The operating budget An operating budget consists of three parts: The statistical budget The revenue budget The expense budget The statistical budget : The statistical budget The statistical budget, which is the best available projection of business activity for the coming year (units or pieces to be produced, contracts to be secured, estimated business activity, etc.). Elements : Elements Sales volume Production volume Inventory volume Headcount The revenue budget : The revenue budget The revenue budget, which is a projection of estimated income for the coming year. Elements : Elements Sales Gross VAT Net Withholding taxes Commissions Incentives/promo Allowances Marketing expenses Gross profit Levels: Division Product Location Profit center Bases : Bases Often, good indicators of future revenues are: past sales (adjusted for whatever is known about the coming period, such as changes in business activity and expected price increases and the like). The expense budget : The expense budget The expense budget, which consists of all anticipated costs of operating the business and conducting the projected level of business. Elements : Elements Salaries & wages Payroll taxes Insurance Training & seminars Publications Memberships Fringe benefits Medical Others Depreciation Amortization Travel Supplies Taxes & licenses Rent Miscellaneous/Others Levels: Division Department Cost center Headcount Bases : Bases Most accurate indicators of future costs are: past costs (adjusted for whatever is known about the coming period, such as changes in business activity and expected price increases and the like). Slide 27: A breakdown of the expenses charged to a department or activity, such as salaries, benefits, supplies, travel, postage and such, is essential. Slide 28: One must keep track of how much money is going into each category of expense, as well as how much one is spending in total. Slide 29: The capital budget A capital budget accounts for potential expenditures for major fixed equipment (for example, a building, a boiler, a new roof, etc.) and major movable equipment (copy machines, computers, etc.). The cash budget : The cash budget A cash budget is usually prepared last in the budgeting process and consists of estimates of the business' cash needs for the year, as compared with projections of the cash receipts for the year. Slide 31: Operating cash receipts Receivables Loans Equity infusion Operating cash payments Payables Capital expenditures Periodic amortization Levels (of accumulation) : Levels (of accumulation) Section Departmental Division Corporate Regional Global Profit or Cost Center Project Event Accumulated, collated, refined and finalized! Slide 33: Controllable Uncontrollable Variable cost Fixed cost Corporate budget : Corporate budget The budget of a company is compiled annually. A finished budget usually requires considerable effort and can be seen as a financial plan for the new financial year. Slide 35: The Finance department compiles the company's budget, but today modern software allows hundreds or even thousands of people in the various departments (operations, human resources, IT etc) to contribute to the final budget. Budgeting Principles : Budgeting Principles (Some only) Timing : Timing A budget cannot be adequately prepared during the final week or two before the new budget period begins. Preparation : Preparation You should collect information used in preparing the budget, especially information concerning expenses, several months ahead of time. Some principles and practical rules of budgeting: : Some principles and practical rules of budgeting: Expenses must always be charged to the department or activity incurring the expenditures. Slide 40: Every item of expense in the business must be under someone's direct control. Slide 41: Managers responsible for complying with an expense budget must participate in preparing the budget. Slide 42: No one should be held responsible for expenditures over which he or she has no control. Slide 43: Unused funds budgeted for expenses may not be carried over from one year's budget to the next. Slide 44: Unused capital-budget funds may not be transferred into operating expenses or vice versa. Slide 45: All individual expenditures must be approved by the appropriate levels of responsibility. Narrative : Narrative A budget narrative is useful in defining the costs included in a budget. It can also be used to explain variances. Slide 47: A budget narrative often is used to explain line items in the budget. It can be structured in one of two ways. You can create "Notes to the Budget" with footnote-style numbers or letters on the line items in the budget keyed to numbered or lettered explanations. Examples : Examples An operating budget You and your budget : You and your budget Actions Right Impact You and your budget : You and your budget Actions Not right Impact You and your budget : You and your budget Effectiveness Efficiency You and your budget : You and your budget Inaction / Omission Impact Communication! : Communication! Communication! Frequency : Frequency Variances! : Variances! Slide 60: Variances against budget Variances against history (usually prior year) Periodic Reports : Periodic Reports Periodic Reports : Periodic Reports Example Corrective : Corrective Increase sales/revenues Slide 67: Reduce cost Postpone cost Eliminate cost Control cost Slide 68: If the actual results are close to the budget, this shows: understands its business & has been successful in driving it in the direction planned! Slide 69: No one knows for sure what the future will bring, but a good budget will not leave one wondering where the money went. Because: : Because: You told the money where to go So, you know where it went Summary : Summary Thank you& Good Luck! : Thank you& Good Luck! You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.