The budgeting of the enterprise is an essential component of financial planning, in other words, the process of determining the actions associated with the creation and use of financial resources in the future. Financial plans are able to ensure the interconnection of expenses and income on the basis of interconnection of indicators indicative of the development of the structure with its financial resources.
The concept and essence of the category
To begin with, it is advisable to consider the concept and essence of the enterprise budget. A budget should be understood as a financial plan, a document that can be expressed in monetary and physical units. This is a kind of tool for managing expenses, revenues, and liquidity of the company.
The budget of the enterprise is nothing more than a plan of a quantitative type in monetary terms, the preparation and adoption of which is carried out before the start of a specific period. As a rule, it shows the amount of income planned to be achieved and expenses that will be incurred during the period. The budget of an enterprise is a category that includes, among other things, capital that must be attracted to achieve the strategic goals of the structure.
Functional
The functions of the enterprise budget include the following items:
- Planning operations that ensure the achievement of company goals. It should be noted that in the process of its development key planning decisions are fixed.
- Coordination of all types of activities of services and structural units. In the process of budgeting, certain types of activities are coordinated so that all departments and services of the company work in a coordinated manner, seeking to achieve strategic goals. It should be emphasized that the approved budget of the enterprise is an important tool for linking existing restrictions and quantitative information.
- Control over the current activities of the company. A carefully planned budget is a specific standard with which it is customary to compare the results achieved in fact.
- Stimulating the leadership of responsibility centers in terms of achieving goals. Each director should know what senior officials expect from the work of his responsibility center.
Budgeting tasks
Budgeting the company is an integral part of one of the managerial functions. It's about planning. That is why budgeting is present in absolutely any effective company management system. It is necessary in order to specify the goals of planning.
The tasks of budgeting a private plan are usually the following:
- Information support of production processes and sales with necessary elements.
- Prevention of the movement of liabilities and assets of the enterprise outside the scope of the planned tasks and goals, in particular, diversion of funds from the turnover above the norm.
- Prevention of unnecessary expenses of money.
- Employee motivation.
- Coordination and control of work related to the implementation of plans.
Stages of budgeting
Budgeting the company is carried out in several stages. It is advisable to note the following stages of budgeting:
- Design and subsequent approval of the financial structure of the company or enterprise. It should be noted that its formation is necessary for the delegation of authority regarding the development of specific budgets to directors of responsibility centers.
- Creating an enterprise budget structure. In this case, structuring is implemented in order to consolidate the powers and articles on budgeting for responsible managers of functioning responsibility centers. Here, the details of the relations existing between the elements of the general budget are worked out. Based on its results, a regulation is issued regarding the budget structure, as well as regulations on private-type budgets.
- Approval of the budget policy of the enterprise (we will consider this category in more detail in the next chapter).
- Creation of budgeting regulations. It should be noted that the procedural regulations include the identification of the time period (otherwise referred to as the horizon) budgeting; procedures associated with the planning and generation of revenues and expenses of the enterprise budget; budget formats, program of action.
Budget policy
It should be noted that the budget policy of the company, judging by the form, is similar to the accounting one. It reflects the following points:
- Evaluation techniques, as well as the principles for creating the planned cost of a product or service.
- Methods of valuation and subsequent reflection of property.
- Methods for displaying payables and receivables;
- The principles associated with the planning of revenue from product sales.
The budget system and its structure. Operating budget
So, on the basis of the above business processes of the company, the so-called system of functional budgets is being built. Together, this is the budget of the enterprise, called the general. It consists of two types of budgets: financial and operational.
The latter suggests that the economic activity of the company is reflected primarily through a system of special technical and economic indicators of the enterprise budget, which characterize certain aspects and stages of production and business operations.
It is important to note that the final goal of such a budget is the formation of a master plan, which takes into account both the profit and the losses of the company. During its development, the budgets of production, sales, procurement, general production costs, labor costs, business expenses, as well as administrative expenses are applied.
Financial planning
The most important component of the general budget of the company is the financial budget. In general, it is advisable to consider it as a balance of expenses and income of the organization. In this case, the quantitative estimates of expenses and budget revenues of the enterprise, reflected in the operating budget, are in any case transformed into money. Its key goal is considered to be a presumptive reflection of the sources of cash receipts, as well as the directions of their application.
So, using this type of enterprise budget, it is possible to obtain the following information: cost of sales, total profit and sales, percentage of expenses and income, payback period of investments, total investment, and the use of borrowed and own funds. The financial budget is a plan where you can get acquainted with the alleged sources of financial resources and directions for their use.
It includes a capital expenditure budget, a forward-looking statement of profit and loss, a cash budget of the company, and a forward-looking statement of financial position and balance sheet.
The main goal of financial planning is to fully ensure the reproduction process with financial resources that are relevant both in terms of volume and structure. In the process of achieving it, the following key tasks of financial planning are highlighted:
- Formation of a system of financial plans with the mandatory allocation of strategic, operational and administrative ones among them.
- Identification of planning volume.
- Calculation of the necessary financial resources.
- Forecast of income and expenses of the enterprise budget.
- Calculation of volumes, as well as the structure of external and internal financing, determination of reserves and identification of financing volumes additionally.
Sample company budgets
The process of compiling BDSDS and BDR may look like the one below. It is advisable to build budgeting at the enterprise or in the company on the example of the production structure. To begin, consider the cash flow budget:
The following is a budget of expenses and revenues:
It is worth noting that we have simplified the presented example as much as possible. However, even from it it is clear that budgeting through tables is a rather laborious process, because you need to collect all functional budgets into a single whole and write down macros, formulas for correctly displaying the final results. If you take a real company or holding structure, you can hardly imagine how much the process of budget formation in Excel becomes more complicated.
It is necessary to add that the example of implementing the considered technology based on Excel has a large number of disadvantages: single-user mode, the lack of differentiation of access to data, as well as the possibility of coordinating functional type budgets, the complexity of consolidation, and so on. So, budgeting by the presented method is considered not the best choice for the company.
Budgeting on the 1C platform
The most popular method today is the organization's budgeting through 1C. Automation of managerial accounting and budgeting on the basis of 1C - for example, in the WA: Financier system - turns the budgeting process into a more efficient one compared to budgeting in Excel. It is worth noting that the indicated subsystem of budgeting includes the possibility of forming and subsequent control of operating and financial budgets.
Solution Benefits
The presented solution implements special mechanisms by which users have the opportunity to independently configure the structure of budgets, the relationships that exist between them, ways of obtaining actual information and data for calculations. It is worth noting that the activated mechanism for interacting with accounting systems of an external type involves the use of external data both for calculating planned indicators or creating reports, and for reflecting actual information on budgeting registers.
This system allows you to effectively build business processes related to budgeting, at all their stages:
- formation of a budget model;
- further harmonization of budgets, as well as relevant amendments;
- reflection of factual information in accordance with budgeting articles;
- careful monitoring of budget execution (both operational and financial);
- plan fact analysis of indicators through advanced reporting tools;
- development of solutions related to business management.
Classification of plans
As a rule, companies form plans, current, operational and strategic. The latter should be understood as business development plans in general, as well as expanding the long-term structure of the enterprise. From a financial point of view, strategic plans form important proportions of reproduction and financial indicators, as well as characterize strategies regarding investments and opportunities for accumulation and reinvestment. Such plans determine the volume and structure of financial resources that are necessary to maintain the structure as a business unit.
The development of current plans is carried out by the strategic method of detailing them, in other words, if the first type of plans gives an approximate list of financial resources, their directions of use and volume, then in the framework of planning the current type, each type of investment is linked to the sources of financing.
Thus, strategic plans are a “macrostructure” of financial resources (priority investment areas, methods of borrowing funds, prospects for changes in the capital structure), and current ones describe the effectiveness of those sources of financing that are not excluded. They contain a calculation of the cost of capital and its components (loans, credits, equity, etc.), as well as an assessment of key areas of the structure’s activities and ways of generating income from a financial point of view.
Under operational plans should be considered tactical plans of the short-term type, which are directly related to achieving the goals of the company, for example, a production plan, a procurement plan for materials and so on. Operational plans are an integral part of the annual or quarterly total budget of the enterprise.
Final part
So, we examined the concept, varieties, functionality and structure of the enterprise budget. In addition, they gave an example of its formation through the two tools used today.
In conclusion, it should be noted that the budgeting process in the company combines the activities of the formation of financial, operational and general budgets, as well as the management and control over the implementation of budget indicators. A budget is nothing more than a quantitative embodiment of a certain plan that characterizes expenses and incomes for a specific period, as well as capital that should be attracted to achieve the goals set by the plan. It is the budget data that plan financial operations in future periods, in other words, the budget is formed before the implementation of the proposed actions. This dictates its role as a basis for evaluating and monitoring the effectiveness of the company.
The main requirements for the information contained in the budget are the following items: sufficiency, clarity, redundancy and accessibility. It is worth noting that each company chooses specific forms of budget formation independently.