The budget is not a financial plan. In no way.
What kind of financial tool is the budget?
How can it be used correctly for the benefit of the company?
Budgets are written only in monetary terms.
To understand how to allocate resources efficiently and effectively of company cash flow it’s required to have a well-designed budgeting
As well, to answer logical questions, such as how much money do we need for business operations? Can we afford to make any capital investments? Possible cash gaps?
Exactly for these answers is needed a budget as a detailed expenditure plan by departments, business lines, projects over a set period.
Responsibilities. Cost &Revenue Centers.
One important rule I’ve learned in my finance practice is that any budgets don’t work unless people are involved in the process and fill in the projected numbers themselves.
The best option is to delegate budgeting to them according to your budgeting policy, review it, and only then approve and adhere to it. Sure, it’s a tough road, but it’s realistic.
So, for example, production workers calculate and fill out and are responsible for production budgets
Sales department is responsible for revenue as well as cost of sales funnel, LTV
Marketing department plans the budget for the cost of their department, advertising, and attracting new leads.
In this case it works properly.
Financial control.
This is a great tool to control and prevent cost overruns.
What’s more, people can see their financial performance, costs by department or unit. So, discuss with your department manager the efficiency of their budgeting and talk about their bottom lines in the context of both the department and the company.
Budgeting KPI
Add to the head of departments an indicator for efficient use of the budget. I would review these: Variance Analysis; Cost Control; Budget Accuracy and ROI.