Budgeting is important to the success of your business. Without it, you have no idea of the amount of money coming in or going out of your company. Effective financial management requires you to maintain a budget annually for the entire company. This will help you ensure that you have enough capital to cover upcoming expenses, as well as help you prioritize your business ventures. Budgets are generally prepared on a department level and then consolidated to form the overall company budget. By consolidating budgets on a departmental level, managers can assess how their department is doing both as a whole and individually and also determine whether or not they have exceeded their budgeted amount.
The budget preparation process determines how the budgets within a company can be consolidated. Most companies know how to create a budget; however, many companies have a harder time consolidating budgets so they have a full view of their organization on a departmental level. We’ve created a few tips designed to help you consolidate your budgets and boost your budgeting efforts. Keep the following in mind as you go about consolidating this year’s budgets:
- Create a plan for how your company will structure the budgeting process. You can structure it according to departments, locations, products, functions, and customer type. Each department should have their own budget that they can compare to other related units.
- Use budgeting software to create and maintain your budget. It doesn’t matter what type of software you use – it can be spreadsheet-based or an off-the-shelf budgeting solution. Many accounting solutions also have a budgeting function to support your budgeting efforts.
- Enter each expense into the appropriate line-item category and ensure that line-item categories are consistent across the company. Each department will have its own code in front of the line-item number so you can keep track of your departmental expenses.
- Once the budgets for each department have been created, distribute them to their corresponding departments. Include specific instructions for each department on how expenses should be entered. While your accountant or bookkeeper will most likely handle the entries, there may be some confusion on smaller items, such as meal allowances.
- Determine a plan for consolidating budgets. This is where you decide which departments, locations, or products will be consolidated and how. For example, let’s say your business owns a number of kiosks in area malls. Rather than maintain a separate budget for each kiosk, you could consolidate the budgets to include all kiosks under each supervisor. This will give you a more complete picture of your business without having to delve into every last detail.
- Compare your budget against actual performance. Calculate the difference between your budget and the actual results using both a dollar amount and a percentage amount.
- Prepare your consolidated budgeting reports for top executives. Business executives don’t want to see every detail; they want to see the big picture. Most budgeting software solutions can help you create a consolidated budget report. However, if you have trouble creating this automatically, you can create it manually by following these steps:
– Add up all sales.
– Add up all costs of sales.
– Subtract cost of sales from sales – this calculates your gross margin.
– Subtract admin costs from the gross margin – this is your gross profit.
– Subtract depreciation and interest from gross profit – this is your net profit.
Stay tuned for more tips and tricks to help you consolidate your business budget. For more effective business budgeting tips, read past articles on our blog. If you need help creating an effective business budget, contact our certified CPAs and accountants today.