To the blog for small and medium sized business (SME) owners.

Monday, August 06, 2007

Discover 7 Principles to Good Budget Preparation

Many business owners may be required, perhaps by a third party or as part of the business internal control measures, to prepare financial forecasts.

This may be a daunting task to some, but for organizations that do control the performance of the business the exercise will be part of normal routines and probably completed with little difficulty.

When preparing a budget the following 7 points are worthy of note:

Plan the exercise
Set a timetable and involve all appropriate staff within the organization and communicate the responsibilities each will have in the preparation of the budget. They will then have ownership for their department.

Remember the Business Strategy
The budget should be a ‘measurement’ and reflect the progress made in implementing the business strategy. The goals may be set, the strategy implementation process commenced and the budget should flow to indicate in financial terms whether the business is on course to achieve the financial goals set. Linking the budget to the business strategy will ensure planned actions will stretch the business resources but remain realistic.

Past Performance is irrelevant
Remember the budget is a financial forecast of the impact future actions will have on the business and whilst past results may be of passing interest, it is what is done in the immediate future that is important.

Analyze the Risk
The business should understand the risks in achieving the budget and have a fallback position should risks materialize.

What is included?
A budget should be more than just a sales and profit forecast. A cash flow forecast and Balance Sheet are as important as the revenue numbers and should not be ignored.

Upon completion of the budget, review, check and amend as necessary the assumptions made and the numbers.

Be in Control of the Process
Effectively manage the budget preparation process and do ensure all budget owners adopt a consistent approach and fully justify all sales and expenditure proposals.

For more helpful hints and tips for the business owner visit the DAW Consulting website.

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