Controlling cash expenditures through budgeting
An important step in controlling expenditures and ultimately profit is by creating a budget for an organization. With ever narrowing profit margins, each department needs to keep careful track of expenses. Some things included in an annual budget are salaries, office expenses, utilities, repairs, and maintenance. Certainly, situations arise that may require purchases that exceed budgeted amounts. There are also times when revenue falls short of the forecasted amount. These situations may cause the organization to revise the budget periodically. However, a budget is usually forecasted for one year. Keeping track of departmental variances from the budget can be an effective management tool. Read more to learn how make an effective budget for any organization.
Instructions
1. Give department managers a statement of departmental expenses from the previous year. Outline a side-by-side comparison of expenses from previous years. Break the statement down by account and date. Depending on the size of each department, consider itemizing each expenditure by category.
2. Hold a meeting with all section, department, and team leaders. Explain your agenda and the organizational goals for the year. Ask each section or departmental manager to estimate his needs for the coming year. Ask each to consider expected purchases, travel requirements, and other recurrent expenses.
3. Look at the estimated needs that each section or departmental manager. Compare the total expense to estimated revenue for the coming year.
4. Determine "want" versus "need". While a manager may "want" a new copy machine, for example, the organization may not "need" the new expense. If projected income is sufficient to cover a list of key "wants", make a provision. If not, reject the request.
5. Add the totals from all departments. Add overhead costs, such as those not budgeted within each departmental total. Compare this number to the estimated revenue for the coming year. Does it allow for a sufficient profit margin? Adjust accordingly.
6. Send proposed budget back to each department, with notes, exclusions, and requests for reductions. For example, you might say, "Needs a 10 percent reduction, resubmit by Friday."
7. Collect proposed budgets after reductions are made. Type the final budget for each department and then distribute.
8. Send out a variance report to compare each department's expenses with their budgeted expenses. If problems exist, schedule a budget meeting.
