Budget Process

 The Budget Process


You always wanted to master the budgeting process in Finance?


Here is what you need to know:


The different steps of the budget:

1/ Set expectations with management

2/ Plan Sales

3/ Operational Plan

4/ Plan Resources

5/ Compute Standard costs

6/ Plan Overhead

7/ Transform budget into Financial Statements


1/ Set expectations:

Understand expectations from management about

- Growth

- Implementation of strategy

- Profitability

- Lessons learned from the past


2/ Plan sales

- Choose the most appropriate method

- Plan with sufficient details to be able to run analysis

- Pay attention to factors impacting changes

- Ensure accuracy of phasing

- Prepare what if analysis with impact on resources and profitability


3/ Operational plan

- Plan production and delivery

- Plan workload


4. Plan ressources

- Plan direct headcounts & capacity

- Plan material needs

- Plan investments


5. Compute standard costs

Compute:

- Direct labor: hours/unit and hourly rate

- Material: quantity & price

- Manufacturing overhead allocation


6. Plan overhead

- Department budget

- Allocations of overhead costs


7. Translate budget into financial statements

- Income Statement

- Balance Sheet

- Cash

- Communicate results and cascade down key figures and action plan


Bonus: Role of Finance

- Coordination

- Consistency

- Documentation

- Communication of targets and results


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