Business budgeting is an exercise that all accountants undertake on an annual basis and which forms an integral part of any successful business planning.
A budget is a document that allocates financial, physical and human resource use over a specified period of time to attain certain goals.
A good budget upholds organizations’ long-term goals and should allocate resources to activities that will drive the company towards achievement of such goals.
The following are the best practices adopted by world class businesses while developing a budget:
1. Link budget development to corporate strategy
To best serve the company’s long term goals and objectives the managers develop a budget that is in line with the company’s corporate strategy.
This unites together personnel in focusing what matters most to the organization and avoids uncoordinated and scattered efforts by various departments and managers.
2. Leverage on technology while designing the budget
More companies are automating their budget management to ease the process and also involve every stakeholder as much as possible. When developing a budget it is best that every stakeholder is kept in the loop on progress during the budget implementation period on performance.
Technology eases business budgeting process and makes it possible for line managers inputs to be incorporated in the budget. Effective technology can be used to make, updating and track of budget much easier.
3. Tie employee incentives to performance measures
To ensure that the business budgeting is a success leading companies tie organization reward system to how best they meet the budget.
While managers are expected to uphold the organizational goals in some instances they can engage in counter productive activities creating risks. Tying budget to the reward system can bring a balanced conduct within the management.
4. Keep an eye of cost management in the budgeting
Managers should keep abreast current costs and probable futures costs to ensure that they provide the budget developers with accurate and relevant information.
This is very useful as it reduces time and cost of developing a budget, since information is readily available.
5. Manage effectively the budget process
To develop a quality budget at low cost the managers should streamline the process by ensuring necessary information is available for access during budgeting and avoid possible delaying circumstances. This will ensure the budget cycle is cost effective and budget developed is effective.
6. Ensure that the budget is flexible to accommodate change
A good budget should be flexible such that it can incorporate changes in the future. Ideally the future cannot be fully be determined and therefore a good budget should be one that can accommodate changes brought by uncertainties in the future.
This gives stakeholder’s confidence to be in a more willing position to retain their relationship with the organization.
7. Develop allocation procedures that support organization’s key strategies
Organizations that follow best practice in budgeting list down procedures on how to allocate resources. They allocate resources in a manner that supports those activities that are in line with key strategies.
These procedures and guidelines help the organization to save time in resource allocation decisions and affirm organizations commitments as planned.
Success in business budgeting is easily achieved in companies that have good corporate governance structures.
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