Budget Management (Budgeting): Complete Basic Guide
"A budget is telling your money where to go, instead of wondering where it went" That's how Dave Ramsey, a financial advisor from the United States, talks about budgeting.
The terms budget, budgeting, budgeting, or budgeting you often encounter when you want to buy or need something to meet your needs.
Well, that's when you are doing the budgeting process. For this reason, the Journal by Mekari will explain what a budget is in full as your basic guide, especially in starting a business or activity.
So What is a Budget?
The basis for estimating various kinds of data, events in the past, risk in the future. The estimates are then analyzed and measured by your ability to meet the objectives to be achieved.
In short, a budget is a process where you estimate how much money you have to spend based on your ability to spend that money.
However, the budget is also not only limited to personal finances but also business finances which are called company budgets.
The company budget itself is a package of plans prepared in accordance with the objectives to be achieved by the company in the coming period which is measured in monetary units.
A budget or budget is also part of microeconomics which shows how an organization or company makes trade-offs, namely placing certain aspects and replacing other aspects to get the goals that the organization or company will achieve.
Function and Purpose of the Budget
As explained above, the benefits and objectives of a budget are to provide an overview of the company or organization regarding the bottom line or goals that will be achieved in a certain period.
Then, what are the other functions of budgeting or budgeting?
- As a form of bottom-up communication to high management or related parties in a project or work for a certain period. So that management knows what the spending priorities are.
- As material for assessing the feasibility of a job or project to be carried out.
- As material for planning reviews of organizational or company finances to determine what resources are appropriate to use based on financial value.
- As a measuring tool, comparison, evaluation, control of the performance of activities or projects that have been worked on.
- Ensuring business runs according to plan and commitments. So that all expenses are measured.
- Measure the remaining finances that can later be used for the next period.
- As a reference in making decisions in applying implementation methods so that available resources can be maximized.
Types of Budget Based on Planning
To understand more clearly, especially in budget management, you need to understand the types of budgets or budgets.
Understanding the type of budget is useful so that you can determine the budgeting method that suits the conditions, goals, or needs of your company at this time.
One type of budgeting that you need to understand is based on planning. What are the types of budgets or budgets based on planning?
1. Incremental Budgeting
Budgeting or budgeting is the most basic and commonly used by companies. Usually, companies that use this budget tend to have routine jobs or projects and are usually used by government agencies.
Incremental budgeting itself is the current year's budgeting which is adjusted to the previous year by adjusting or changing several allocations.
2. Activity Based-budgeting
Activity-based budgeting is a top-down approach to budgeting. This means that the budgeting process is determined directly by the management.
Management will determine the amount of input needed to achieve company targets. For example, with an input of $500 what is the amount that can be issued based on activities that intersect with the company's goals.
3. Value Proposition Budgeting
This type of budget is prepared based on the value proposition that the work to be planned can provide.
Will the project being undertaken will provide value to consumers? Employees? Stakeholders? Or the product itself?
It can be said that this type of budgeting is a very strict budgeting process because it aims to avoid unnecessary expenses.
4. Zero Based-Budgeting
Have another name as no residual budget. Where budgeting is done with the assumption that each allocation starts from zero.
This type of budgeting process does not consider activities in the previous period. Usually this budget is bottom-up and top-down because the budgeting process requires discussion between employees and management.
This type of budgeting occurs when the company undergoes financial restructuring due to the impact of economic changes or internal company impacts.
Types of Budgeting Based on Engagement
The budgeting process is also divided based on the involvement of management and employees. Where this involvement is divided into two types, namely bottom-up and top-down.
Bottom-up is a decision-making process based on discussions and input from employees. Meanwhile, top-down decision making is carried out by the management and the employees will adjust accordingly.
1. Imposed Budgeting
The budgeting approach process is based on top-down. Policies to determine the company's achievements are decided and determined directly by top management.
2. Negotiated Budgeting
A combination of top-down and bottom-up methods where management and employees sit together to determine goals and policy direction in achieving company outcomes.
The negotiated budgeting process takes quite a long time, so this budget process is deemed ineffective in terms of time.
3. Participated Budgeting
The budget process is carried out based on input from employees or uses a bottom-up approach. Usually this budgeting is done when certain posts experience problems or changes in strategy in achieving company goals.
Types of Activity Based Budgeting
Budgeting or the budget is also divided based on its activities, including:
1. Master Budget
As the name suggests, the master budget is the overall budget of an organization or company.
The master budget consists of all company activities from sales, operations, planning, assets, to human resources.
The master budget serves as a measuring tool or evaluation of overall business performance. Where will be seen whether the company is healthy or not from a financial point of view.
2. Operating Budget
The operating budget serves as a tool for forecasting and analyzing the operating income and expenses of an organization or company in a certain period.
Operating budget consists of direct labor budget, overhead budget, raw material cost budget, production budget, sales budget, inventory budget, and program budget.
3. Cash Flow Budget
Cash flow budget or cash flow budget is useful for allocating or knowing how cash flow works in a certain period.
The cash flow budget is very dependent on company debts. iCash flow budget also serves as a guide for the company to make decisions for future steps.
For example, a construction company will typically use a cash flow budget to determine when they will start building before being paid by the project owner.
4. Financial Budget
Financial budgets are usually carried out by companies to manage their assets, liabilities and capital.
The financial budget includes a profit-loss budget, balance sheet budget, capital change budget, and also a change in financial position budget.
Tips for Preparing a Budget
Jurnal by Mekari also has some tips that you can use to prepare a budget, especially for those of you who are starting a business. Like what?
Set Goals You Want To Achieve
Budgeting is actually a guide or a way to reach a goal. Without any purpose for what you set a budget for On the other hand, a goal without a budget planning makes it difficult to achieve that goal.
For example, for this period you need marketing tools to increase the coverage of your brand. You can make an outline like this,
Goal: Increase brand awareness through marketing tools
How to?
- What tools will be used?
- How many effective tools are needed to achieve this goal?
- How long will the tools be used?
- How much will it cost if used within a certain period?
- Who are the customers that you want to build awareness for?
The questions above must also be tailored to your abilities and availability of resources. How much capital do you have to fulfill these activities?
The suitability of revenue or resources will also influence your decisions in determining activities when budgeting.
Pay attention to fixed costs and variable costs
Paying attention to fixed costs and variable costs is useful so that you can hold back on spending unnecessary things.
By knowing these two costs, you can determine budget priorities. Pay attention to what is the fixed cost in your budget. Make these fixed costs a priority for your calculations.
Fixed cost = fixed costs which include; employee salaries, equipment, supplies, or items that are very basic in project activities to be carried out.
Variable cost = variable costs which include; marketing tools, or fees that you can use as trade-offs or replace them.
Provide complete information
Good budgeting contains detailed and comprehensive information. For example item A, how many are there? When is the duration of use? Rent or buy? How much it costs? When did the item come into use?
Complete information allows you to make trade-offs, or reduce costs that are not necessary in the budget.
In addition, complete information in the budget can be used as a performance measurement tool for each written budget allocation.
Budget is Not Only a Plan, but A Growth Plan
Creating a budget is actually not just a plan to abort budget allocations. But what about the budget, the achievement planned in the current period can exceed the determined target.
For example, your budgeting goal wants to streamline your brand coverage through Instagram Ads.
Your focus is not only on how the use of Instagram Ads can be done. But how the use of Instagram Ads can lead to sales conversions or even greater.
0 Response to "Budget Management (Budgeting): Complete Basic Guide"
Post a Comment