An organization’s budget dictates how it leverages capital to work toward goals. For this reason, the ability to prepare a budget is one of the most crucial skills for any business leader—whether a current or aspiring entrepreneur, executive, functional lead, or manager.
Before preparing your first organizational budget, it’s important to understand what goes into a budget and the key steps involved in creating one.
Budgets are a crucial part of any workplace. They allow organizations to plan their finances, allocate resources efficiently, and achieve their goals. For managers, creating and overseeing budgets is a key responsibility.
Done right, budget management leads to cost savings, productivity gains, and optimal financial performance. Done poorly, it can spell disaster for a department or company.
Whether you’re new to business budgeting or want to improve your skills, this comprehensive guide will teach you how to master budget management at work.
Understanding Your Organization’s Goals
The first step to budget success is understanding why a budget exists in the first place, Budgets are ultimately tools to accomplish a company’s objectives Common business goals include
- Increasing profits and revenue
- Reducing operating costs
- Launching new products or services
- Expanding to new markets or locations
- Improving efficiency and productivity
When creating a budget always tie it directly to forward-looking organizational goals like these. Ensure every dollar spent ladders up to strategic priorities. This approach leads to targeted, purposeful budgets that drive growth.
Building an Effective Budget
With goals in mind, you can start building a budget. Keep these tips in mind:
Forecast Expenses
Make a list of all upcoming expenses like payroll equipment inventory, marketing campaigns, travel, training, etc. Use previous cycles and market research to estimate costs as accurately as possible. Overestimating is safer than underestimating.
Anticipate Revenue
Estimate total revenue from sales, investments, partnerships, and other sources. Again, use historical performance and economic projections to inform the most realistic targets possible. Plan for setbacks like customers churning.
Compare Expenses and Revenue
Compare expected costs to projected income. If expenses exceed revenue, you must lower costs and/or find opportunities to increase revenue. Tweaking assumptions now instead of later prevents surprises.
Build in a Buffer
Budget extra as a buffer for unanticipated expenses. 10-20% of total expenses is a good buffer amount. It’s easier to not use a buffer than get caught without one when emergencies arise.
Get Stakeholder Buy-In
Consult with stakeholders like leadership and team members to get buy-in before finalizing the budget. They may offer helpful insights on improving accuracy and feasibility. This also boosts team investment in sticking to the budget later.
Monitoring Progress
Once the budget is set, your work shifts to actively managing it. Consistent monitoring and course correcting is crucial. Here are some best practices:
Set Checkpoints
Establish regular checkpoints where you review budget status. Monthly is most common, but assess high priority or high cost items weekly. Always check before launching campaigns/projects to confirm sufficient resources.
Track Spending Closely
Keep detailed records of exactly what gets spent. Log expenditures in real time using tools like spreadsheets or budgeting software. Analyzing past spending will make future estimates more precise.
Identify Trends
Watch for positive and negative trends in the data. For example, utility costs trending higher than planned may require adjusting. Recurring trends inform updates to assumptions and targets for next year’s budget.
Make Timely Adjustments
When metrics diverge from the budget significantly, act quickly. Delaying only exacerbates issues. You may need to reduce spending in certain areas, shift money between accounts, request more funding, etc.
Report on Variances
Keep leadership and stakeholders aware of any budget vs. actual discrepancies. Present variances with context and recommendations to realign with targets. Transparency builds trust.
Leading Your Team Through the Budget
Managing a departmental budget well requires involving your team. Foster budget buy-in and ownership with these tips:
Explain The Why
Help the team understand budgeting goals and how they ladder up to company objectives. People support what they understand and feel invested in. Explaining the why secures their engagement.
Make it Collaborative
Solicit the team’s input when creating the budget. They may spot places to cut waste or boost efficiency. Making it a group effort leads to stronger plans and accountability.
Communicate Expectations
Provide clear guidelines on what expenses require pre-approval, what requires receipts, spending limits, reimbursement processes, etc. Remove ambiguity on policies to minimize mistakes.
Share Progress Regularly
At team meetings, review budget metrics together like a scoreboard. Celebrate successes sticking to the budget. Course correct together when issues arise without blame.
Reward Success
Find ways to reward teams who help keep budget on track like through recognition, events, or bonuses. Incentives boost engagement in managing it responsibly.
Adjusting Next Year’s Budget
As the current budget cycle wraps up, you must start planning next year’s budget. The data and lessons learned guide smart updates for the future.
Review Past Performance
Analyze what worked and what didn’t in this year’s budget to improve next time. Look at where you over and underestimated consistently. Find places that have room for optimization.
Incorporate Emerging Factors
Account for internal and external changes that may impact future budgets like new hires, costs increases, economic shifts, expanding operations, etc. Past assumptions may require adjustments.
Set New Goals
Align the budget with updated organizational goals and strategic priorities for the coming year. Ensure resources are allocated to drive key initiatives moving forward.
Refine Processes
Consider better systems and tools to enhance budget management processes. Automation and streamlining can improve monitoring, reporting, approvals, accuracy, and more.
Get Approvals
Once satisfied with the draft budget, submit it through the established approval workflow and incorporate any feedback from leadership. Secure official signoff before the new budget year begins.
Key Takeaways
Managing a business budget well is crucial but challenging. Summarizing the keys:
- Tie budgets directly to organizational goals and priorities
- Build budgets collaboratively with thorough revenue and cost forecasts
- Monitor performance rigorously and continuously
- Make quick adjustments when deviations occur
- Report budget status regularly to stakeholders
- Involve teams through transparent communication and incentives
- Use each cycle to improve following years’ budgets
With diligence and an analytical, goal-oriented approach, any manager can master budget management. Doing so elevates departments, boosts workplace success, and advances your leadership skills.
Understand Your Organization’s Goals
Before you compile your budget, it’s important to have a firm understanding of the goals your organization is working toward in the period covered by it. By understanding those goals, you can prepare a budget that aligns with and facilitates them.
For example, consider a business that regularly experiences year-over-year revenue growth that’s offset by rising expenses. That organization might benefit from focusing efforts on better controlling expenses during the budgeting process.
Alternatively, consider a company launching a new product or service. The company may invest more heavily in the fledgling business line to grow it. With this goal, the company may need to trim expenses or growth initiatives elsewhere in its budget.
Steps to Prepare a Budget for Your Organization
The steps below can be followed whether creating a budget for a project, initiative, department, or entire organization.
(L029) Basic Budgeting Concepts – Leadership and Management
How do you manage a workplace budget?
Effectively managing a workplace budget involves strategic planning, prioritizing expenses, and embracing technology. Establish clear financial goals, regularly review budgets, and adapt to changes. Involve key stakeholders, leverage budgeting tools, and foster a culture of financial responsibility for optimal results.
How do new managers manage budgets?
Most newly promoted managers will take on the responsibility of managing their departments’ budgets, and there are several strategies they may use for effective budget management. For instance, the accounting method you choose to use can be a strategic tool for accurately tracking your department’s budget.
How do you manage a department’s budget?
Take personal ownership of your department’s resources as if it was your own business. Ask your manager how your department’s budget supports the company’s organizational goals. If possible, review your manager’s budget to have a broader perspective of how your budget fits in.
What should you do when working on a budget?
When you start work on your budget, agree with your boss on how you should present contingency amounts, in such a way that they’re not cut. If people in your team are aware of the budgeting process, it’s important that your team perceives a “win” for your budget. Make sure you manage their expectations as well.
