Budgeting is not just a boring process of counting numbers. It is a powerful tool that will help you manage business finances, make informed decisions and achieve your goals.

The process of maintaining budgets is an integral part of successful business management. Even if you have A small company or a startup, the ability to properly distribute financial resources is the key to your stability and growth.

What is budgeting?

Budgeting is the process of planning income and expenses for a certain period. This is not just a calculation money, but also strategic management of business resources. Proper budgeting includes analysis, strategic planning and control over the implementation of the plan.

The budget is the result of the budgeting process. This is a financial plan that can be expressed both in monetary and physical terms. Usually, budgets are developed for a year, broken down by quarters and months.

You can draw up a budget both for the entire business as a whole and for its individual segments: divisions, functions or specific products. For example, you can make a budget for income and expenses, for production or by sales.

The main goals of budgeting are forecasting future revenues, controlling expenses, and analyzing deviations from Plan. A budget helps you decide how much money you can spend on different items of expenditure, what are your income and how to achieve your goals.

It should be noted that budgeting is not a mandatory process. Companies are engaged in it on Voluntarily. Nevertheless, the availability of a budgeting system greatly facilitates the management of the company and increases the chances of achieving your goals.

Why do you need budgeting?

It is necessary to manage financial flows, income and expenses at the initial stage of the company's life. On When starting a business, when the number of operations is still small, companies can do without complex budgets. Managers often store information about estimated profits, schedules of receipts and payments in notes or simple tables.

However, as the business grows, the number of transactions, counterparties and the variety of goods and services increases, It becomes necessary to systematize and streamline all financial information.

Key tasks of budgeting:

• Cost control: Without the right budget, it's easy to lose control of your finances. He helps avoid unnecessary costs and allows you to respond quickly to financial problems and unforeseen situations.
• Planning for the future: a clear understanding and assessment of your financial flows allows you to Not only forecast revenues, but also plan important decisions such as: hiring new employees or optimization of production processes. With the help of budgeting, you can forecast revenues and determine which investments or improvements will bring the greatest Out.
• Make informed decisions: Budgeting allows you to be data-driven, not on intuition. You can evaluate and understand which lines of business require more additional funds, and which can be optimized.
• Risk Management: Properly Organized Budgeting Enables Timely Budgeting prepare for unforeseen circumstances, such as: economic crises or changes on the market.

What are the types of budgets?

Budgets are divided into operational and financial. Operating budgets describe revenues and expenses, as well as cash flow in each area of the company's activities. While financial budgets reflect the consolidated financial performance of the entire organization.

Financial budgets are used to summarize information from operating budgets and are divided into three categories:

• Income and Expenditure Budget ;
• Cash flow budget [CFR];
• Management balance.

Let's talk a little more about the types of budgets:

Operating budget is the most common type of budget that covers current company operations. Focuses on the core business of the enterprise and can be developed in the following areas:

Sales;
production volume;
stocks of goods and products;
commercial and administrative costs.
Unlike the main budgets, the operating budget is more detailed and covers defined business processes. Helps to plan the costs of wages, rent, procurement materials and other articles. The operating budget is often broken down into monthly or quarterly budgets plans for ease of control.
The income and expenditure budget is the basis of the company's financial planning, covering planned indicators of revenue, profit and expenses. The BDR allows you not only to predict cash flows, but also to analyze the profitability of the business. The budget is drawn up according to the accrual, in which the available income and expenses are recorded not at the time of financial transactions, but at the time of transactions.
The cash flow budget includes all financial receipts and expenses of the company. Unlike the BDR, this type of budget is formed by the cash method, in order to predict the presence of cash gaps and manage liquidity.
The management balance sheet is a plan that reflects the assets and liabilities of the company. It is created on the basis of current balances, such as: receivables and payables, as well as inventories.
Other types of budgets:
Auxiliary budgets are not tied to the main activity of the business and therefore serve for analysis costs and revenues related to external finances. For example, the loan budget fixes sources of borrowed funds, while the tax budget allows you to calculate the state of tax liabilities and revenues.
Special budgets are the distribution of items in basic budgets. It can be a budget for the distribution of net profit or a detailed estimate for a specific project. In small and medium business, such detailed budgets are rarely used, since small companies usually make do with simpler plans.
Investment budget: a forecast plan for long-term investments, such as the purchase of equipment or investing in the development of new projects. It is important to assess what investments and methods will bring the largest profit, and take into account the payback period.
The capital budget covers large capital expenditures that can have a significant impact on business. For example, the construction of new facilities or the acquisition of the main Equipment. This budget should be carefully planned and include a risk assessment.
Principles of budgeting
Regardless of the type and size of the budget, its creation should be based on certain general principles. This is ensures effective team work and improves the budgeting process.

Key principles of budgeting:
Unified budget system. All departments are required to use unified forms of budgets, as well as a unified classification and coding of income and expenses. Such instructions define and ensure consistency in budgeting approaches.
Completeness of information. It is necessary to include data on all revenues and expenditures in the budgets, ensuring detailed analysis. This will allow you to track the directions of cash flows and various types of costs of the organization.
Balance. The company's income and expenses should be in harmony with each other. Planned expenses should not exceed the amount of income, including additional funds, which may be needed to cover the deficit.
Target orientation of expenditures. Funds allocated in the budget should be used strictly by purpose, which will increase the efficiency of budget resources.
Data validity. The information included in the budget must be reasonable and reliable. This is will avoid significant deviations between planned and actual indicators.
Adherence to these principles and methods contributes to a more effective and transparent budgeting process in the Company.

Budgeting methods
There are various methodologies that can help in creating budgets:

Top-down method: management sets a total budget, which is then It is distributed into various divisions. This ensures that the overall strategy is consistent Company.
Bottom-up method: each department develops its own budget, which then it is combined into a common one. This approach may be more accurate, as it takes into account the specifics of the work of each department.
Large organizations with a management hierarchy are characterized by a top-down approach, while small ones are characterized by a top-down approach. businesses where the management system is more flexible, the bottom-up method is most often used.

Incremental budgeting: the method is based on the use of budget or actual data for the previous period. Baselines are adjusted to reflect expected changes in the company's activities, for example, an increase in production volumes, price changes, sales growth Incremental budgeting is one of the most common approaches in the process. budgeting.
Budgeting "from scratch": assumes that new budgets are developed without taking into account the previous ones data, they start from scratch. This approach is focused on the critical analysis of all indicators of the company, especially expenses, and to include in the budget only those items that are really necessary for the successful functioning of the business.
How to organize budgeting?
If you plan to implement budgeting in your enterprise, an important action will be the creation of a center financial responsibility (CFR). The main task of the CFR is the development and implementation of budgets. These features can be entrusted to the finance department.

The presence of the CFR distinguishes budgeting as a separate process, in contrast to simple planning. In this case, It is necessary to appoint those responsible for budget execution, approve the financial structure, and choose the appropriate method and determine the planning horizons.

The classic algorithm of actions for organizing budgeting:
Step 1: Define your goals
Before you start, you need to be clear about what goals you want to achieve with Budgeting. These can be both short-term (10% increase in sales) and long-term goals (business expansion, improvement of the quality of customer service, entry into new markets). Setting goals accurately will help you focus on what really matters to you Business.
Step 2: Data Collection
Collect all the necessary data on past financial performance, such as income statements and losses, balance sheets, data on cash flows. It is important not only to fix the numbers, but also to understand Trends: seasonal fluctuations, the impact of various factors on profitability and costs.
Step 3: Budgeting
Based on the information gathered, develop a preliminary budget. Indicate the estimated income and distribute them by expense items, for example, salaries of employees, rent, purchase materials, advertising and other necessary expenses.
Step 4: Maintenance and control
Launch your budget! Monitor the execution of expenses and income on a regular basis to monitor deviations from the plan. It's important not just to create a budget, but also to track its execution. Regularly check the actual data with the planned data. This will help you notice problems at an early stage and promptly adjust your financial plans.
Step 5: Analyze the results
After the end of the reporting period, analyze how the strategy was executed. In the end Compare the actual indicators with the planned ones, identify deviations and common causes of these Deviations. This will help you improve the budget process for the next period.
It is important that the planned budget indicators are realistic. Inflated goals can demotivate employees, while underestimated employees can have a negative impact on development Company.
Budgeting tools or how to automate this process
Budgeting and control are not easy tasks, and mistakes can often occur. It can manifest themselves in the form of unnatural reports or lack of a unified approach to reporting, which, in turn, can lead to underestimation of income or overstatement of expenses. As a result, the budget may not be fulfilled, and Recalculation of data becomes even more difficult due to their significant volume.

To solve these problems, software products are being developed that are capable of processing large arrays Information. Such programs are often equipped with built-in tools for data control and approval, which minimizes the risk of errors and inconsistencies.