Budget Preparation Steps

Many businesses create budgets that they compare against their actual results throughout the course of the next year. To ensure that the finished budget is available for use at the start of the upcoming fiscal year, the budget preparation process should be extremely structured and adhere to a predetermined timeline. 

Here are the fundamental procedures to adhere to when creating a budget:

• Updating Budget Assumptions: Review and amend if appropriate the business environment assumptions that were utilized to create the previous budget for the company.
• Analyze bottlenecks: Determine the principal bottleneck's capacity level and how this will affect any future company revenue growth. The bottleneck is what is preventing the company from generating more sales.
• Available Resources: Establish the most likely amount of funding that will be made available over the budget period, as this may constrain growth objectives.
• Points for Step Costing: Establish the amount of these expenses and the activity levels at which they will be incurred, as well as whether any step costs will be incurred during the probable range of company activity in the upcoming budget period.
• Assemble a Budget Package: The fundamental budgeting guidelines from the guidebook used the year before should be copied forward. It should be updated to reflect the year-to-date actual expenses incurred in the current year. This data should also be annualized for the entire current year.
• Issue a Budget Package: Wherever possible, personally distribute the budget package and respond to any inquiries from recipients. Mention the deadline for the budget package's initial draft as well.
• Forecasting Revenue: The other department managers should be given the sales manager's revenue prediction once it has been verified by the CEO. They construct their own budgets based on the revenue figures.
• Get departmental budgets: Obtain the departmental budgets, review them for faults, and compare them to the funding, bottleneck, and step costing restrictions. Budgets should be adjusted as needed.
• Obtain requests for capital budgets: Verify each capital budget proposal, then send it along with comments and suggestions to the senior management group.
• A budget model update: Fill out the master budget model with all available budgetary data.
• Examine the budget: Review the budget during a meeting with the senior management group. Draw attention to any potential constraints and any restrictions brought about by financial challenges.
• Process Budget Iterations: Track outstanding budget change requests, and update the budget model with new iterations as they arrive.
• Publish the Budget: Distribute a bound copy of the budget to each and every person who has been given permission.
• Upload the Budget: Fill the financial software with the budget data so that you can produce budget versus real reports.

For a tiny organization where possibly just one person is involved in the process, the amount of processes indicated above may be overkill. If so, the process can be considerably sped up to the point where a rough budget may be created in a matter of hours or days.

To have a more detailed explanation on each step and the overall process, check our Budgeting training courses