Mistakes in Business Budgeting
Posted: Wed Jan 22, 2025 8:42 am
In order for the drawn up business budget to meet expectations, and the efforts spent on its creation not to be reduced to nothing, it is important to avoid mistakes in the process. Let's consider the most critical ones.
Formal approach
There are situations in which a company does not take the budgeting process seriously as a method of financial planning, and accordingly, the approach to its implementation is formal, just for show, "there is and there is". As a rule, documents drawn up in this way are not subject to execution. A formal budget can be determined by the following features:
The plan is drawn up based instagram database on the organizational structure, not the financial one. Most companies consider their divisions, workshops, departments, branches as separate CFOs. But the functions of the organizational and financial structures are fundamentally different. Let's consider this using the example of a clothing and footwear retail company. The company has several outlets. The financial structure should have two responsibility centers - for clothing and footwear. At the same time, the company's organizational chart may not have such a division.
There is no developed mechanism for internal tariffs. In a large enterprise, there is not one, but several business units that constantly interact with each other. This can be either the provision of any services or the purchase or sale of something. Usually, these actions are regulated by the regulation on internal business accounting. This is how the added value is formed, which should be reflected in budgeting. And this is possible only with the help of internal organizational rates.
Lack of a motivation system. It is this that can stir up and interest the participants of any process to work for the result. This also applies to the sphere of financial planning. Positive results in budget development should be reflected in the amount of remuneration of the personnel involved in this. In this case, this document automatically moves from the category of formalities to something more important.
Mistakes in Business Budgeting
Spraying resources
In some market niches, companies can develop very quickly, and the share of sales and income increases accordingly. The feeling of permissiveness among managers begins to prevail, and at some point the rate of spending money exceeds the rate of earning it. After some time, the company may face bankruptcy.
To avoid such a situation, it is necessary to implement budgeting and financial planning processes. The relevant department must prepare income and expense forecasts before the reporting period begins. The manager must determine the amount to maintain production and upgrade equipment. Then all other budget items are planned. In the end, the financial department will systematize all its processes, automate them, and the company will be able to forget about bankruptcy, non-payment risks, etc.
The CEO is involved in operational budgeting
If the company's manager signs payment documents and controls expenses for office expenses, administrative and household needs, then this indicates degradation or complete absence of the system of delegation of powers. Operational control is not within the competence of the director, since he will simply not have enough time to carry out his direct responsibilities for strategic business development.
Large enterprises carry out operational control with the help of the treasury, the main areas of activity of which are tracking financial planning, applications and expenses, making decisions on requests of the company's divisions. In a business with a small budget, these functions can be assigned to the finance manager. Distribution of funds occurs in accordance with the established limits.
Every company of any size should have a clear development strategy and understand how to realize its ambitions. Planning the organization's budget is one of the tools for achieving the set goals.
Formal approach
There are situations in which a company does not take the budgeting process seriously as a method of financial planning, and accordingly, the approach to its implementation is formal, just for show, "there is and there is". As a rule, documents drawn up in this way are not subject to execution. A formal budget can be determined by the following features:
The plan is drawn up based instagram database on the organizational structure, not the financial one. Most companies consider their divisions, workshops, departments, branches as separate CFOs. But the functions of the organizational and financial structures are fundamentally different. Let's consider this using the example of a clothing and footwear retail company. The company has several outlets. The financial structure should have two responsibility centers - for clothing and footwear. At the same time, the company's organizational chart may not have such a division.
There is no developed mechanism for internal tariffs. In a large enterprise, there is not one, but several business units that constantly interact with each other. This can be either the provision of any services or the purchase or sale of something. Usually, these actions are regulated by the regulation on internal business accounting. This is how the added value is formed, which should be reflected in budgeting. And this is possible only with the help of internal organizational rates.
Lack of a motivation system. It is this that can stir up and interest the participants of any process to work for the result. This also applies to the sphere of financial planning. Positive results in budget development should be reflected in the amount of remuneration of the personnel involved in this. In this case, this document automatically moves from the category of formalities to something more important.
Mistakes in Business Budgeting
Spraying resources
In some market niches, companies can develop very quickly, and the share of sales and income increases accordingly. The feeling of permissiveness among managers begins to prevail, and at some point the rate of spending money exceeds the rate of earning it. After some time, the company may face bankruptcy.
To avoid such a situation, it is necessary to implement budgeting and financial planning processes. The relevant department must prepare income and expense forecasts before the reporting period begins. The manager must determine the amount to maintain production and upgrade equipment. Then all other budget items are planned. In the end, the financial department will systematize all its processes, automate them, and the company will be able to forget about bankruptcy, non-payment risks, etc.
The CEO is involved in operational budgeting
If the company's manager signs payment documents and controls expenses for office expenses, administrative and household needs, then this indicates degradation or complete absence of the system of delegation of powers. Operational control is not within the competence of the director, since he will simply not have enough time to carry out his direct responsibilities for strategic business development.
Large enterprises carry out operational control with the help of the treasury, the main areas of activity of which are tracking financial planning, applications and expenses, making decisions on requests of the company's divisions. In a business with a small budget, these functions can be assigned to the finance manager. Distribution of funds occurs in accordance with the established limits.
Every company of any size should have a clear development strategy and understand how to realize its ambitions. Planning the organization's budget is one of the tools for achieving the set goals.