Formation of the enterprise budget is an essential component of financial planning, in other words, the process of determining actions related to the creation and use of financial resources in the future. Financial plans are able to ensure the relationship of expenses and incomes based on the interconnection of indicators indicating 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. The budget should be understood as a financial plan, a document that can be expressed in monetary and natural units. This is a kind of tool for managing expenses, income, and liquidity of the company.
The budget of an 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 the costs to be incurred during the period. The enterprise budget is a category that includes, among other things, the capital that needs to be raised 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 is worth noting that in the process of its development, key planning decisions are fixed.
- Coordination of all types of activities of services and departments of the structure. In the process of budgeting, individual types of activities are coordinated so that all departments and departments of the company work in a coordinated manner, striving to achieve strategic goals. It should be emphasized that the approved enterprise budget is an important tool for linking existing constraints and quantitative information.
- Control over the current activities of the company. A carefully planned budget is a certain standard against which it is customary to compare the results achieved in fact.
- Stimulation of the management of responsibility centers in terms of achieving goals. Every director needs to know what their superiors expect from their responsibility center.
Budgeting objectives
Company budgeting is an integral part of one of the management functions. It's about planning. That is why budgeting is present in absolutely any effectivecompany management system. It is necessary in order to specify the goals of planning.
The tasks of budgeting a private plan include the following:
- Information support of production processes and sales with the necessary elements.
- Preventing the movement of the company's liabilities and assets beyond the planned tasks and goals, in particular, the diversion of funds from circulation in excess of the norm.
- Don't waste money.
- Motivating employees.
- Coordination and control of work related to the implementation of plans.
Stages of organizing budgeting
Company budgeting is carried out in several stages. Here it is advisable to note the following stages of budgeting organization:
- Design and subsequent approval of the financial structure of a company or enterprise. It should be noted that its formation is necessary for the delegation of authority regarding the development of specific budgets to the directors of responsibility centers.
- Creation of the enterprise budget structure. In this case, structuring is implemented in order to secure the powers and articles on budgeting for the responsible managers of functioning responsibility centers. Here, the links that exist between the elements of the general budget are worked out in detail. Based on its results, a regulation on the budget structure is issued, as well as regulations on private budgets.
- Approval of the budget policy of the enterprise (we will consider this category in more detail innext 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) of budgeting; procedures related to planning and formation of income and expenses of the enterprise budget; budget formats, action program.
Fiscal policy
It is worth noting that the budget policy of the company, judging by the form, is similar to accounting. It reflects the following points:
- Methods of estimation, as well as principles for creating the planned cost of a product or service.
- Methods for valuation and subsequent reflection of property.
- Methodology for displaying accounts payable and receivable;
- Principles related to product revenue planning.
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. In the aggregate, this is the budget of the enterprise, called the general budget. It consists of two types of budgets: financial and operational.
The latter assumes 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 economic work.
It is important to note that the ultimate goal of such a budget is the formation of a master plan, inwhich takes into account both profits and losses of the firm. It is developed using production, sales, purchasing, general production, labor, selling, and administrative budgets.
Financial planning
The most important component of the company's general budget is the financial budget. In the general version, it is advisable to consider it as a balance of expenses and income of the organization. In this case, the quantitative estimates of the expenses and incomes of the enterprise budget, displayed in the operating budget, are in any case transformed into monetary ones. Its key purpose is considered to be a presumed reflection of the sources of receipt of funds, 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 volume, percentage of expenses and income, payback period of investments, total investment, as well as the use of borrowed and own funds. The financial budget is a plan where you can get acquainted with the proposed sources of funds and directions for their use.
It includes a capital expenditure budget, a pro forma income statement, a company cash budget, and a pro forma statement of financial position and balance sheet.
The main goal of financial planning is the full provision of the reproduction process with financial resources that correspond both in terms ofvolume as well as 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 obligatory allocation of strategic, operational and administrative ones among them.
- Identification of planning scope.
- 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 additional financing volumes.
Sample Enterprise Budgets
The process of compiling the BDDS and BDR may look like the one below. It is advisable to build budgeting at an enterprise or in a company using the example of a production structure. First, consider the cash flow budget:
The following is the budget of expenses and income:
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 it is necessary to collect all the functional budgets into one and write macros, formulas for the correct display of the final results. If you take a real company or holding structure, you can hardly imagine how much more complicated the process of budgeting in Excel.
It should be added that the implementation example of the considered technology based on Excel has a large number of disadvantages:single-user mode, lack of access to data, as well as the possibility of coordinating budgets of a functional type, the complexity of consolidation, and so on. So, budgeting in the presented way is considered not the most optimal choice for the company.
Budgeting on the 1С platform
The most popular technique today is the formation of organization budgets using 1C. Automation of management accounting and budgeting based on 1C - for example, in the "WA: Financier" system - makes the budgeting process more efficient than budgeting in Excel. It is worth noting that the specified budgeting subsystem includes the possibility of forming and subsequent control of operational and financial budgets.
Benefits of the solution
In the presented solution, special mechanisms are implemented, through which users have the opportunity to independently configure the structure of budgets, the relationships that exist between them, ways to obtain actual information and data for calculations. It is worth noting that the activated mechanism of interaction 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 the budget model;
- further coordination of budgets, as well as current amendments;
- reflecting actual information in accordance with budgeting items;
- careful control over the execution of budgets (both operational and financial);
- plan-fact analysis of indicators through advanced reporting tools;
- develop solutions related to business management.
Classification of plans
As a rule, companies form plans, current, operational and strategic. The latter should be understood as plans for business development in general, as well as expansion of the long-term structure of the enterprise. From a financial point of view, strategic plans form important proportions of reproduction and financial indicators, and also characterize strategies regarding investments and opportunities for accumulation, 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 a 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 within the framework of the current type of planning, each type of investment is mutually linked with funding sources.
Thus, strategic plans are a "macrostructure" of financial resources (priority investment areas, methods of borrowing money, prospects for changes in the capital structure), and current plans describe the effectiveness of those sourcesfunding that is not excluded. They contain a calculation of the cost of capital and its components (loans, credits, equity, etc.), as well as an assessment of the key activities of the structure and ways to generate income from a financial point of view.
Under operational plans should be considered short-term tactical plans that are directly related to the achievement of company goals, for example, a production plan, a material procurement plan, and so on. Operational plans are an integral part of the annual or quarterly overall budget of the enterprise.
Final part
So, we have considered the concept, varieties, functionality and structure of the enterprise budget. In addition, they gave an example of its formation through two tools used today.
In conclusion, it should be noted that the budgeting process in a company combines the activities of forming financial, operational and general budgets, as well as managing and monitoring the implementation of budget indicators. The budget is nothing more than a quantitative embodiment of a certain plan, which characterizes the expenses and incomes for a specific period, as well as the capital that should be attracted to achieve the goals set by the plan. It is the budget data that plan financial transactions in future periods, in other words, the budget is formed before the execution of the proposed actions. This dictates its role as a basis for assessing and monitoring the effectiveness of the company.
The main requirements for the information contained in the budget arethe following points: sufficiency, clarity, non-redundancy and accessibility. It is worth noting that each company chooses specific forms of budgeting independently.
