Join Jim Stice for an in-depth discussion in this video Review of the budgeting steps, part of Finance for Non-Financial Managers.
- Let's review the steps associated with a simple budgeting process. Step one,write your budget down. I like the quote, "A goal unwritten is just a wish." If our budget isn't in writing, we might as well just cross our fingers, close our eyes, and hope for the best. Step two, identify those areas for which you are responsible and which you control. It's not fair and that means generally, that it's not good business to have someone be accountable and answerable for something over which they have no control.
Step three is to quantify expected results. This is the budget or the plan. Those quantities may be in dollars, as was the case with the price per board foot in our example or they may be in units, as was the case with the number of board feet to be purchased. A budget is not necessarily about money. It is about responsibility. If you are responsible for the money, then your budget should reflect the money. If you are responsible for quantities, then your budget should reflect those quantities.
Step four is to compare actual results to the budget. You should be able to identify deviations from the budget. Those are the items of interest. We need to know more about those deviations. And that leads us to the final step in the budgeting process. Step 5, ask questions to determine why the deviations from the plan occured. There may be legitimate reasons for variances from the plan and then again, those deviations may be the result of poor planning or poor execution.
This final step in the budgeting process highlights a point we have made throughout this course. The numbers often don't provide the answers instead, they identify where we need to go to ask the next question. The numbers assist us in getting to the bottom of things but the numbers aren't the bottom of things. People are at the bottom of things. It's the people who make things happen. The numbers just help us get to the right people.
- Interpret financial reports and make decisions based on available data
- Manage inventory and receivables
- Create an accurate budget
- Cost a product or service
- Analyze customers
- Understand your income taxes
- Communicate your contribution to the bottom line