Budgets

My former boss used to say if you fail to plan, then you have planned to fail
(Benjamin Franklin). He used to advise us to make a list of things we want to
achieve the next day so that at the end of the day we can know how far we have
performed for the day by comparing what we have actually done against what we
have written down on the list.

Budget to my understanding is making a list of items or things which will make it

possible for you to achieve a set target or aim with the monetary value estimated to
drive the listed items to achievement. From this we can actually say that budget is
like a plan one makes to ensure that a business goes in the right direction, it acts as
the driving force for a business.

Budget Process

So what are the things we need to consider when drawing up our budgets? Those
things that we put into consideration when drawing up the budget to ensure that
the budget even though is an estimate of what we hope to achieve is as near reality
as possible makes up the budget process.

What business you are involved in or the strategic plans you hope to achieve drives
the type of budget drawn up. For a large retail Internet Service provider, the
processes involved in drawing up a budget are as listed below.

1. Setting up business goals and achievement

The internet service provider needs to consider how far its business has gone
and how far they want the business to go. What achievement do they want
from the business in the next few years to come and what customers base
are they targeting.

a. How far do I want my reach to go?

b. How many customers can do I want to afford my service?
c. What price is affordable to customers and profitable to me?
d. How many retailers and resellers do I want to push my service up?
e. What are the services that I want to provide to my customers that will
ensure customer satisfaction and drive up sales; is it off the shelf or
customized to their needs?

2. Gather data from previous and current year

There is need to gather data to aid in the proper preparation and planning of
the budget which acts as a guide (Anon, 2009) on how a business makes its
income, what it expects to expend on its expenses and what and how to drive
revenue.
Information and data gathered can include but not limited to
a. How much sales was made on services provided
b. The demographics of the past and current customer
 c. What product sold more and what product has a tendency for sales
if pushed more
d. What expenses did we incur and so on
e. Who are my customers and which of my services do they patronize
the most

3. Project the future needs of the business and customers

Project the future needs of the business based on the data gathered and
goals of the business as already stated. Here you need to answer questions
(Wood & Sangster, 2005). such as
a. How many more customers are coming on board
b. How much to spend on expenses
c. If the business is expanding, how much to be spent on equipment,
labor and employees
d. From previous data gathered do we need to customized services or
continue with off the shelf service we are currently providing and
how much can we expect from their sales

4. Prepare the budget

After going through steps one to three, we now prepare the budget based on
the business strategic goals, the data gathered and the business projections
of the near future. We prepare the budgets based on sales we expect to
generate (sales budget), if there is need for expansion, what equipment are
needed (purchase budget), what are the expenses we incur along the way
(expenses budget) and what cash is coming into and going out of the
business (cash budget) (Atrill & McLaney, 2013). Also when preparing
budgets, it is good that we make provisions for alternatives, that is what will
happen in case we need a new employee mid year? Or if sales does not go as
forecasted what to do?

5. Budget implementation
After the budget has been prepared, implementing the budget is the next
step. Ensuring that the budgeted sales and revenue are achieved, the
overhead cost do not unnecessarily increase more than budgeted, and also
ensuring that capital project cost such as purchase of equipment necessary
for expansion do not unnecessarily increased more than budgeted or if it
increases, it has a valid reason for it to go off budget are ways the Internet
service provider can implement his budget.

6. Controlling the budget of the business

What happens when a budgeted item goes beyond its budget? Ensuring that
items budgeted for do not unnecessarily increased is part of budget control
(Wood & Sangster, 2005). It is important to note that the budget was
prepared with the hope of achieving some business goals and as such the
budget needs to be properly monitored and controlled to ensure that those
goals are met.
 7. Evaluating business performance based on budget
As said earlier, a budget is a guide and as such it is important to ensure that
the business evaluates its actual performance against the budgeted items.
Were we able to bring in the sales budgeted, did we keep to the monetary
value budgeted for expenses, how much did the actual cost of equipment
overlap the budgeted cost? All these are done by comparing actual with
budgeted. Evaluating your budgets enables you to cut cost where necessary.
Have we been able to save from implementing the budget or not. (Concordia,
n.d.)

References

Atrill, P. and McLaney, E. (2013) Accounting and Finance for Non - Specialists 8th Ed.
Harlow, Essex: Pearson Education Limited.

Wood, F. & Sangster, A. (2005). Business Accounting, 10 th Ed. Harlow, Essex:

Pearson Education Limited

Anon (2009). Essential five steps on budgeting process. [Online] Available From:
http://accounting-financial-tax.com/2009/02/essential-five-steps-on-budgeting-
process/ (Accessed: 26 August 2016)

Concordia (n.d.). Basic steps to making a budget. [Online] Available From:

http://www.concordia.ca/students/financial-support/budgeting/basic-steps-to-
makingabudget.html (Accessed: 26 August 2016)