8 Steps of the Budgeting Process for Companies

The Milestone Team May 27, 2024
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The ideal steps in the budgeting process are different from company to company. Yet, for businesses looking to revamp their financial planning systems, certain best practices still hold true. In this guide, we go through the essentials of designing a budgeting process. We also answer pressing questions, including:

Creating a business budget is crucial for managing income and expenditures, guiding decision-making processes, and ensuring financial stability.

Introduction to Corporate Budgeting and Financial Health

Corporate budgeting—like all processes that involve a large number of stakeholders—can be a messy process. Yet, with your company’s financial health on the line, it’s a crucial process to get right. Business budgeting is essential in financial management as it helps in setting targets and expectations, securing funding, and prioritizing initiatives.

The first step to effective budgeting is to take a holistic approach to financial planning, which starts with forecasting. Forecasting involves taking in all of the available data regarding your company’s financial position, finding patterns and relationships between data points, and setting expectations based on those insights.

In other words, forecasting provides context for discussions surrounding budgeting. When you have the information to estimate future financial conditions, your team can decide how to best allocate resources to thrive. Aligning financial goals with business objectives is crucial when creating measurable targets for the budgeting process.

Effective budgeting results in optimizing your use of available resources. Contact us to learn more about how to improve your financial planning process.

Introduction to Corporate Budgeting and Financial Health

What Are the Eight Steps in the Preparation of a Budget and Expected Revenue?

The eight essential budgeting process steps are:

  1. Establish Clear Goals: Like all business processes, budgeting should serve your organizational goals. Allocate more resources to the initiatives that will move your strategic vision forward. Budget allocation is a key responsibility of department managers in the top-down approach.
  2. Evaluate Previous Budgets: Historical data is key to informing decision-making. Investigate the accuracy of past budgets to see how much certain projects actually cost compared to estimations. Encourage individual budget managers to review budgets within their organization and consult with other team leaders.
  3. Assess Revenue Estimates: Revenue estimations are a look ahead to future resources and can help your team put income to work as it comes in. Calculate existing revenue as the starting point for any budgeting exercise.
  4. Outline Expected Expenses: Future costs will place limitations on your available resources. During forecasting, it’s important to project expenses such as materials and shipping costs to inform ROI calculations during budgeting. Include expected revenue by estimating revenue from various sources and analyzing historical data.
  5. Anticipate Cash Flows: Similar to revenue, estimating cash flow from various sources within your business will provide a clear picture of how many resources you have to divide between high-priority projects.
  6. Prepare for Contingencies: Forecasting is never 100% accurate, and budgets don’t always go to plan. Build in unexpected costs during budgeting so you can respond to cost increases, employee turnovers, production delays, and other challenges as they arise.
  7. Allocate Resources Efficiently: Precise historical data and thorough forecasting will help keep budgets lean so you can invest as much as possible in each project. Of course, you’ll still want to pad budgets in case of emergencies.
  8. Monitor and Adjust: Keep an ongoing record of budget accuracy to inform future budgetary decisions. Are projects going above or under budget? How can you more efficiently allocate resources?

Could your team benefit from assistance during some or all of the above budgeting steps? Reach out today to learn how we can help.

Principles and Stages of the Budgeting Process

When progressing through the budgeting process, it’s vital to keep best practices in mind. So, what are the eight principles of budgeting? Effective budgeting process steps in business will consider the following:

  • Simplify, simplify, simplify, especially when making crucial decisions about allocating funding and resources to specific projects or aspects of the business, considering business priorities.
  • Changes can be made during periods of growth or decline.
  • Streamline decision-making bodies.
  • Stick with a change until you can measure results.
  • Equip your team with the tools and technology they need to succeed.
  • Data is critical to decision-making, but numbers only tell a portion of the story.
  • Communicate insights with clarity and intentionality.
  • Always consider how team members’ ability to perform will be affected by budgetary decisions.

It is also important to consider financial priorities, such as allocating a portion of income or funds to savings, paying down debt, and making strategic financial decisions.

What Are the Stages of the Budgeting Process?

The overall financial planning and analysis process should include distinct stages for forecasting and budgeting. While these processes work together in the long run, they also need individual attention. This is because forecasting gathers information and insights that give context to budgetary decisions. You can’t run before you walk without tripping—the same goes for budgeting without forecasting.

Including revenues, associated expenses, employee salaries, benefits, and non-salary expenses in the operating budget is crucial for the daily operations of the business.

What Are the Stages of the Budgeting Process?

Implementing the Business Budgeting Process in Your Company

To thoroughly implement budgeting process steps in your business, customize best practices to fit your specific needs. To do so, ensure your team:

  • Engages relevant stakeholders throughout the process—including employees who will have to operate within financial constraints. Identifying what drives business success and using those elements to guide financial planning activities is crucial.
  • Uses technology to improve both the accuracy and efficiency of financial planning and analysis processes. Encourage individual budget managers to review budgets within their organization and consult with other team leaders.
  • Regularly reviews and adjusts financial plans to account for new information. It is essential to justify variable costs critically, as these costs are generally the first to be cut when there is a budget overshoot.

Milestone: Your Partner in Budgeting from Start to Finish

According to the Chamber of Commerce, inadequate planning is one of the top reasons why small businesses fail. Your business doesn’t have to settle for an undersized or overextended finance team. Instead, bolster your financial planning efforts by partnering with the experts at Milestone. Our team is ready to help you with:

Reach out today to learn more!  

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