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Top ten tips: Creating a budget
A budget reflects priorities, plans and expectations, and the process of creating one can influence how well it is received by staff and bosses, as well as its value as a management tool. David West offers advice on how to approach this daunting annual task.
1. Talk to your boss about expectations
It is easy to under or – more likely – over-estimate your task. Remember the story of little girl who asked, "Mummy, where do I come from?" Her mum launched into a tale starting with bunny rabbits but was interrupted: "No, Mummy. I just wanted to know if I come from Birmingham, like Jane."
It is easy to under or – more likely – over-estimate your task. Remember the story of little girl who asked, "Mummy, where do I come from?" Her mum launched into a tale starting with bunny rabbits but was interrupted: "No, Mummy. I just wanted to know if I come from Birmingham, like Jane."
2. Talk to your team
Find out what is, and isn’t, working. Ask staff to provide estimates of budget figures. Balance their estimates against your own to approach a realistic budget. The team will live with your budget – involving them will provide an incentive to live within it.
Find out what is, and isn’t, working. Ask staff to provide estimates of budget figures. Balance their estimates against your own to approach a realistic budget. The team will live with your budget – involving them will provide an incentive to live within it.
3. Use company forms and formats
Most organisations have tailored forms or recommended formats for preparing budgets. Check to see which forms or formats you should use.
Most organisations have tailored forms or recommended formats for preparing budgets. Check to see which forms or formats you should use.
4. Integrate old data with new
You may only be half way into the current budget when asked to prepare the next one. That means the “actual” data with which you work may be eighteen months old. To move ahead, look at the old data and consider what has changed. Forecast year-end numbers for the current budget. Monitor internal and external changes and consider how they may affect your next budget cycle.
You may only be half way into the current budget when asked to prepare the next one. That means the “actual” data with which you work may be eighteen months old. To move ahead, look at the old data and consider what has changed. Forecast year-end numbers for the current budget. Monitor internal and external changes and consider how they may affect your next budget cycle.
5. Phase your budget
Spend will change month to month. There will be peak activity periods, and there are summer vacations, December festivities, and a shorter month in February. If you budget the same amount each month, spending may not reflect actual activity.
Spend will change month to month. There will be peak activity periods, and there are summer vacations, December festivities, and a shorter month in February. If you budget the same amount each month, spending may not reflect actual activity.
6. Look carefully at variable costs
Some factors may be outside your control (e.g. payroll costs for your team members), while others are within it (e.g. the price you pay for services from outside consultants). Monitor the changes and take control where you can.
Some factors may be outside your control (e.g. payroll costs for your team members), while others are within it (e.g. the price you pay for services from outside consultants). Monitor the changes and take control where you can.
7. Make it readable
Software such as Microsoft Excel is not just about calculation but also about presentation. Make sure your boss can understand what you have produced when you are not there. Notes on calculations and assumptions are particularly helpful.
Software such as Microsoft Excel is not just about calculation but also about presentation. Make sure your boss can understand what you have produced when you are not there. Notes on calculations and assumptions are particularly helpful.
8. Take your time
If you invest some time in creating a budget, it will be easier to manage and ultimately more effective. Always let it sit for a while. It is a bit like wine – it needs to breathe. Come back after a while and you will see your budget from a new angle.
If you invest some time in creating a budget, it will be easier to manage and ultimately more effective. Always let it sit for a while. It is a bit like wine – it needs to breathe. Come back after a while and you will see your budget from a new angle.
9. Keep notes
If you keep only numbers, it isn’t likely you’ll recall the thinking behind the budget. Best to keep notes when you enter the numbers. If you use Excel, right click on the cell to enter a comment.
If you keep only numbers, it isn’t likely you’ll recall the thinking behind the budget. Best to keep notes when you enter the numbers. If you use Excel, right click on the cell to enter a comment.
10. Look for and explain significant variances
One of the first things that the boss will look for is wide swings in past history compared to the current budget projections. There is nothing wrong with this but be prepared to explain them as part of your budget document.
One of the first things that the boss will look for is wide swings in past history compared to the current budget projections. There is nothing wrong with this but be prepared to explain them as part of your budget document.
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