Budgeting and financial planning procedures

Introduction

The Board of BizOps Enterprises is responsible for overseeing the budget of the
organisation and for ensuring that the organisation operates within a responsible,
sustainable financial framework.

In line with this responsibility, the Board conducts a budget planning process each year as
part of its annual business planning.

Purpose

This policy is designed to set out the process for compiling, monitoring and reviewing
BizOps’s annual budget.

Policy

The Board of BizOps Enterprises conducts a budget planning process each year as part of
its annual business planning.

The organisation operates under a budget that must be flexible in responding to unforeseen
events, including possible reductions in cashflow. The annual operating budget must
therefore be regularly monitored and reviewed.

Responsibilities

The Board has ultimate responsibility for overseeing the budget of the organisation and for
ensuring that the organisation operates within a responsible, sustainable financial
framework.

It is the responsibility of the Finance Manager to prepare all budgets and review budgets in
consultation with the Budget Committee.

The Budget Committee consists of the:

• Finance Manager
• Business Operations Manager
• Human Resources Manager
• Marketing Manager
• Sales Manager
• Customer Service Manager

Why do we manage finances and produce budgets?

The overall aim of managing finances and producing budgets is to ensure that the
organisation operates within a responsible, sustainable financial framework.

Budgets aid the planning of actual operations by enabling managers to consider variables
and contingencies and to determine what steps should be considered or taken before
problems arise.

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Budgeting and financial planning procedures
Budgeting also helps coordinate the organisation’s activities by compelling managers to
examine relationships between their own operation and those of other departments.

Other essentials reasons for budgeting include:

• communicating plans to departmental managers and team leaders
• motivating managers and staff to strive to achieve budget goals
• evaluating the performance to a unit level
• providing visibility into the organisation’s performance.

Procedures

Preparation of budgets

The processes followed by BizOps Enterprises in creating and approving budgets:

• The Finance Department prepares worksheets to assist the department managers in
preparing department budget estimates.
• The relevant director calls a meeting of managers and they present and discuss plans
for the following year’s projected level of activity.
• The department managers work with the director to prepare an estimate for the
department’s coming year.
• Completed budgets are presented by the department managers to their director for
review and approval.
• Justification of the budget request may be required in writing. In most cases, the
department manager talks with their director about budget requirements.

Budget types prepared

Sales budget – an estimate of future sales, often broken down into both units and dollars;
used to create the organisation’s sales goals

Production budget – an estimate of the number of units that must be manufactured to meet
the sales goals; the production budget also estimates the various costs involved with
manufacturing those units, including labour and material

Cashflow/cash budget – a prediction of future cash receipts and expenditures for a particular
time period that usually covers a period in the short-term future; the cashflow budget helps
the organisation determine when income will be sufficient to cover expenses and when there
will be a need to seek outside financing or draw on capital reserves

Marketing budget – an estimate of the funds needed for promotion, advertising and public
relations in order to market the product or service

Project budget – a prediction of the costs associated with particular internal projects that
include labour, materials and other related expenses; the project budget is often broken
down into specific tasks, with task budgets assigned to each

A cost estimate is used to establish a project budget.

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Budgeting and financial planning procedures
Management budgets – used to support specific management actions; these can include
budgets for stock levels, development budgets, contingency analysis, GST commitments, tax
commitments, etc.

The budgeting process

The process of preparing a budget is sequential but, in reality, the process is not as
straightforward and involves iteration processes where some steps may need to be
repeated.

The steps in the budgeting process are outlined below:

1. Determine budget policies and guidelines.

- Consider the overall corporate objectives.
- Consider past results and performance.
- Consider internal strengths and weaknesses.
- Consider external opportunities and threats.
- Select a budget period (length of time the budget will cover) and a control period
(time interval for reviews).

2. Set up a Budget Committee.

- This committee consists of representatives of all directors of the organisation.
- The committee meets regularly to administer the budgeting process.
- The Finance Manager is responsible for organising technical assistance and
providing relevant information as requested.
- Budget Committee duties include:
• communicating budget policies and guidelines – this includes pre-budget
meetings and strategy sessions to inform managers and team leaders of budget
requirements
• identifying budget cost centres – these are units/departments that need to be
allocated resources to enable them to perform their functions
• establishing a timetable for the budgeting process
• identifying limiting factors – constraints that limit the organisation’s planned
activities
• coordinating forecasts and harmonising budgets
• monitoring implementation

3. Prepare assumptions and forecasts.

- Use statistical and mathematical techniques such as regression, moving averages,
trend analysis, sensitivity analysis and simulation.
- Qualitative factors, such as natural intelligence, historical analogy and market
surveys, are also considered.
- Data inputs must be appropriate for the intended forecast.
- Cost/benefit of forecasting technique should be considered.

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4. Produce functional and subsidiary budgets.
- Departmental heads submit their projections to the Budget Committee.
- The Committee compares all functional budgets for feasibility and practicability.
- Amendments are recommended and performed.
- Committee approves.

5. Produce the master budget.

- The Committee consolidates all the budgets into a master budget.
- This includes the projected profit and loss account, projected balance sheet and
cashflow statement.
- The master budget is submitted to senior management for review and approval.

6. Obtain approval for the budget.

- Senior management considers the consistency of the budget with long-term plans
(market leadership, customer service, branding and social responsibility).
- Consistency with short-term plans is also considered (profitability, adequate return
on capital, solvency and liquidity).
- CEO approves.

7. Publish and implement the budget.

- The budget is circulated to budget holders and departmental heads for
implementation.
- The budget becomes an executive order, empowering lower-level managers and
demanding performance from them.
- Top management must provide necessary financial and moral support.

Monitoring and reviewing the budget

The Finance Manager is responsible for monitoring the organisation’s expenditure, reviewing
the actual and budgeted expenditures, and reporting on the progress of such expenditure.

Financial reports will be prepared each month showing the year-to-date expenditure and its
variation from the budget estimates, and indicating any increases or decreases in revenue
and expenses. A detailed commentary should be attached to Board reports detailing reasons
for variations and recommendations for corrective action should it be required.

The Finance Manager will indicate what impact any variations will have on the budget
projections and provide this information to the CEO and the Board. The Finance Manager
will also report on any other financial matters that may be related to the business plan.

Once adopted by the Board, the amended budget will become the new operating budget for
the remainder of that financial year.

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