Term Paper: Report Outlining the Steps Involved in Implementing the Budget

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¶ … Budget

Implementing a Budgeting Process

Budgeting Process is more than an exercise in estimating numbers for its own sake. It is about strategic planning, which involves identifying business goals and objectives and mapping out in tangible terms how those goals will be accomplished over time. This allows for a way to measure results against those goals and identify ways to adjust variables in order to better control outcomes. A budget is the instrument that identifies your income and outflows and how these should align in order to achieve the company's targets. It is obvious, then, that the goals of the organization must be clearly specified prior to implementing a budget plan. For instance, this year's goal might be a 10% increase in gross revenues and a 4% overall increase in profit margin. There are many ways to accomplish this, such as an increase in advertising spending, a switch to a less expensive supplier, or a capital investment back into the business itself to improve service and/or product.

Designing and implementing a budget is not as arduous and time consuming as one may think. First, it is important to identify basic data requirements. The Chart of Accounts is a useful benchmark, as the general ledger will contain most of the information that is needed to outline the line items for the organization in fiscal terms. Fiscal calendars, seasonality, and special timelines should be taken into consideration. The prior year's income statement and balance sheet can be a good starting point to assess the prior years' performance and set goals in accordance with future expectations.

In addition, a simple format should be established for populating this information. In the process of strategic planning, one must decide whether budgeting will be implemented from the "top down," i.e., by senior management, or with input from key employees. Who will be held accountable for the budget? How often does it make sense to conduct variance analysis? To revise the numbers? Once these questions have been answered, it is important to put into writing in the form of a manual the format, deadlines, and accountabilities associated with defining the budgeting process. The format must meet proper business requirements, i.e., for government and local agencies and fiscal authorities. Accurate records must be available to support reported numbers.

It is important to distinguish between an operational budget and a cash flow budget and how revenues, receipts, expenses and disbursements are treated accordingly. In addition, it is important to understand distinctions between assets and liabilities, different types of assets (long-term and short-term), how they can be purchased, and when they are reported as depreciation or a capital outlay and why. In addition to understanding what expenses and receipts for each day (income statement), considering the businesses' balance sheet will help provide a big picture of the organization's financial position both now and in the near future (1-5 years generally). This allows for adjustments to me made to spending and other activities in a more pro-active manner, allowing funds to be utilized in a way that supports the organization's goals and objectives.

Cash Flows

Understanding the amount of cash that comes in and goes out of your company is one of the most critical steps in the budget planning process, because it provides an immediate view of how money is spent and if receipts are timely enough to cover expenses. For instance, Is the company taking advantage of vendor discounts by paying invoices earlier, or are too many customers paying on credit causing the firm to hold off on paying some of its own vendors, thereby losing discounts that can add up… [END OF PREVIEW]

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Report Outlining the Steps Involved in Implementing the Budget.  (2006, May 28).  Retrieved November 19, 2019, from https://www.essaytown.com/subjects/paper/report-outlining-steps-involved-implementing/3287133

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"Report Outlining the Steps Involved in Implementing the Budget."  Essaytown.com.  May 28, 2006.  Accessed November 19, 2019.
https://www.essaytown.com/subjects/paper/report-outlining-steps-involved-implementing/3287133.