Managing enterprise resources is not easy. It is necessary to draw up financial plans, control the movement of revenue and expenses, correlate strategic and management decisions with the economic situation of the company, and much more. Financial planning and budgeting help management to cope with these tasks.

The Fundamentals of Budgeting in the Enterprise
The main task of budgeting is to provide the organization with the necessary resources, including financial ones. It consists of two simple things - allocate existing resources and plan new profits in the future.

From a global perspective, budgeting helps an organization achieve strategic goals and win the competition. After all, when a company has the resources, you can confidently increase momentum, and develop new niches, in a word, develop. Therefore, financial planning in any organization begins only after the development of a strategy. When the strategic goal is known, the finance department evaluates the amount of resources needed to achieve it and how to attract them.

The concept of business financial planning is slightly broader than budgeting (since the former includes the latter). Financial plans define the indicators that the company needs to achieve by a certain period. Budgets - specify the economic plans of the organization, distribute resources between departments, and allow you to evaluate the contribution of each manager to the success of the company. The budget is a plan of the company's activities for the future period in terms of money. It shows the expected income and expenses and the amount of capital necessary to achieve business goals.

Budgeting is also called a tool for financial planning, accounting, and control of business income and expenses. Its value is that the budget system allows you to analyze the predicted and actual indicators not only for the entire company as a whole but also for individual departments, projects, or accounting centers. Usually, such indicators are subject to budgeting: sales volume, revenue, costs, profits taxes, fees and contributions to various funds, credit load, working capital, investments, etc.

Financial plans should be drawn up so that the company optimizes the use of resources and receives as much net profit as possible. They can be long-term - for 1 year, short-term - for a month or quarter. Long-term planning determines the acceptable pace of expansion of the enterprise and the increase in the value of the business. Short-term ones ensure the constant solvency of the enterprise.

In terms of consistency, budgets are first formed for each division, and then they are reduced to the main budget for the enterprise.

Enterprise Budgeting Scheme
Consider what is included in these budgets and why they are needed.
1. Operational budgeting
This is, in fact, the plan of the enterprise for the year. This includes such budgets as sales budget - it determines how much goods the company plans to sell during the month or quarter. It is done with a division by type and product group. This helps to prepare the rest of the organization's budgets. A production budget allows you to adjust the volume of sales, production, and inventory, taking into account the sales plan. The budget of the company's costs for wages takes into account both piecework and fixed parts of salaries. Business expenses budget includes marketing costs, affiliate payments, transportation, etc. management expenses budget - this includes taxes, utilities, interest on loans, accounting maintenance, etc.

2. Balance budget
This document reflects the planned amounts of assets and liabilities for the reporting period.

3. Financial budget
It indicates possible sources of funds and how the company plans to use them. It also includes an investment budget - the document plans investments in business development, for example, the cost of purchasing new equipment or opening a new branch. The cash budget is an estimate of the expected receipts and expenditures of financial receipts for the reporting period.

More budgets are divided into fixed and flexible. In the first case, financial indicators are not revised (a fixed view is considered a classic form of budgeting). Flexible budgets can be adjusted. In conditions of uncertainty, companies practice the middle option - rolling budgets. They are updated every quarter. Planned values are recalculated, which allows you to quickly respond to changes in the economy.

How to Start Budgeting at the Enterprise
The budgeting system at the enterprise is being built in stages. And this process begins far before the formation of budgets, and, as we have already said, with strategic planning. In addition, the main condition for the introduction of budgeting will be the well-established work of the financial department and clearly defined performance indicators for all departments of the company.

This is how the preparation for the introduction of a budgeting system at an enterprise looks like:
1. Development of a strategy
The strategic plan allows you to determine the image and purpose of the enterprise's activities in the long term.

2. Financial structure of the organization
It is necessary to understand if it functions at all and how. If it is in a chaotic state, you need to organize its work.

3. Indicators and reporting
Determine the indicators for evaluation, and how reporting will be built on them.

4. Regulations on budgeting
Organize the budget regulations and link it with the accounting policy of the organization.

5. Automation of budgeting at the enterprise
It is started when the budgeting system is adjusted and works without failures.

Analysis of Indicators for the Previous Period
Department managers collect data and submit it to the finance department for calculations. Typically, the financial department requests the following data: on revenue received, shipments, and debts - for regular analysis, data on the main items of expenditure (profit and loss, investments, payroll) - at the end of the budget period, other data on request. For example, the financial department needs to calculate the feasibility of investing in expanding production or purchasing new equipment. The head of the department may be asked for performance indicators on a separate line.

Selection of indicators
It is important to determine the volume of planned indicators so that the reports are not too extensive.

Operational Planning
First, short-term cost budgets for departments are prepared.

Control over the execution of budgets
Clear indicators and limits described in financial plans help here.

Sometimes difficulties arise at the stage of coordination of plans between departments. For example, the purchasing department requests a detailed plan from the product supply department, but it cannot provide it promptly. To solve the problem, you need to coordinate the documents for each department, the type of budget, and the deadlines for reporting.

There also can be difficulties with the implementation of plans, and the transfer of information from senior management to line employees, which can demotivate the team. Such failures occur due to a misunderstanding of the essence of budgeting, its benefits, and the elementary foundations of building a budget system in a company.

To build an effective budgeting system or improve its individual sections, an enterprise can invite an outsourcing company. Involved experts will help identify weaknesses in the enterprise's economy, and adjust financial goals and indicators. However, experts will not be able to build a budget system without the help of full-time managers and employees. Therefore, no matter how an enterprise implements budgeting: with the help of outsourcing or on its own, financial planning will be effective only if trained and qualified personnel are involved in it.

Author's Bio: 

I am Amelia Grant, journalist, and blogger. I think that information is a great force that is able to change people’s lives for the better. That is why I feel a strong intention to share useful and important things about health self-care, wellness and other advice that may be helpful for people. Being an enthusiast of a healthy lifestyle that keeps improving my life, I wish the same for everyone.

Our attention to ourselves, to our daily routine and habits, is very important. Things that may seem insignificant, are pieces of a big puzzle called life. I want to encourage people to be more attentive to their well-being, improve every little item of it and become healthier, happier, stronger. All of us deserve that. And I really hope that my work helps to make the world better.