Budgeting for Managers

by Sid Kemp

Overview

Now translated into 11 languages! This reader-friendly, icon-rich series is must reading for all managers at every level

All managers, whether brand new to their positions or well established in the corporate heirarchy, can use a little "brushing up" now and then. The skills-based Briefcase Books series is filled with ideas and strategies to help managers become more capable, efficient, effective, and valuable to their corporations.

Managers in all types of organizations and environments must be able to prepare, or at least understand, a realistic and results-oriented budget. Budgeting for Managers­­rich in practical techniques and examples­­walks the reader through the entire budgeting process, from basic financial concepts and their use in creating a budget to methods for tracking actual spending.

Product Details

ISBN-13:	9780071416801
Publisher:	McGraw Hill LLC
Publication date:	11/22/2002
Series:	Briefcase Books Series
Sold by:	Barnes & Noble
Format:	eBook
Pages:	180
File size:	5 MB

About the Author

Sid Kemp is a trainer, author, and consultant, and the head of Quality Technology & Instruction, Inc.

Eric Dunbar is CFO of QTI and works with entrepreneurs to set up financial systems.

Read an Excerpt

Budgeting for Managers

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By Sid Kemp, Eric Dunbar

The McGraw-Hill Companies, Inc.

Copyright © 2003The McGraw Hill Companies, Inc.
All rights reserved.
ISBN: 978-0-07-141680-1

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Excerpt

CHAPTER 1

Budgeting: Why and How

Act before there is a problem. Bring order before there is disorder.

—Lao Tzu

Budgeting is more than just a job we have to get done to satisfy the financial department. Planning and budgeting can help us lead our team to success. Sometimes, when we write a plan, we catch errors. It's a lot better to catch errors in a plan than to have problems later on in the office or on the shop floor because you didn't catch the errors. In fact, it's been shown that good planning will typically reduce the costs of a project by about a factor of 10.

In this chapter, you will learn how to create a simple expense budget. There's a lot here, but don't worry. Every idea in this chapter will be explained further on in the book in more detail. Our goal for this chapter is to create a simple success together: your first budget. Let's go!

Why Make a Budget? Who Reads Budgets?

There are several good reasons to create a budget and to make it a good one. The reasons are tied to the people who will read and use the budget. Each reader will look at the budget in a different way and do something different with it. If you know your readers, you can make a budget that will impress everyone—and, more important, show how your group is contributing to the organization and therefore approve the funds you need to proceed. If you know how the budget will be used, you will know how to write it in an easy-to-use way. More important, it will help you succeed and show that you are a good manager and that your team is doing a good job. So, let's take a look at your audiences and what they will do with your budget.

You and Your Team

You and your team are your first, and most important, audience for your work plans and your budget. When you read the budget, you want it to make sense. This means that you understand it, of course, but it means more than that. The budget should be believable and workable and it should work the way your team works and be appropriate to your situation.

Your Boss

Your boss is your second audience. Of course, you want the budget to be correct, clear, and complete for him or her. If your boss checks your work closely, you don't want any errors to show up. If your boss doesn't check it closely, you certainly don't want the budget to go further upstairs with mistakes in it. Your boss will also check the totals of the budget against available funds. In some companies and in many government agencies, the boss will also check the budget against rules and limitations. Some organizations require that top managers approve the line-item budget.

Your boss will also seek or approve funds for the budget. In a company, you may do work for another department, and then bill that department for the work you do. Or the cost may be billed to a client, but your boss will need to make sure that you are planning to spend the right amount of money for that client. Some of the money may come from restricted funds, such as a training budget or government grants. Then you can use that money only for the purpose specified in the budget. You will have to track this money carefully and you may have to work with other restrictions on the funds, such as using particular types of contracts or submitting receipts that prove how the money was spent.

Three other audiences for your budget are the financial department, the accounting department, and, possibly, the human resources department.

The Financial Department

The financial department is responsible for acquiring and planning for the use of all funds within your company. The budget you put together becomes part of the whole corporate budget they create. If your company has an annual report, your plan and budget will appear as a part of the total financial picture. If you deliver a clear budget with no errors, you make their work easier—as well as your own, because you won't have to correct it later on. If your team gets its work done well within your budget, you improve the company's bottom line and help ensure success.

The Accounting Department

The accounting department is responsible for managing and tracking all financial transactions for the company. They will create account codes for each of your line items and assign them in their computer system. Every time money is approved or spent, they will track that event and take from the money allocated in your budget and show it as actually spent.

The Human Resources Department

If your budget includes money to pay salaries for you or your team, it will also involve the human resources department, sometimes called personnel. People in human resources work closely with accounting and finance with regard to salary and other employee-related expenses. You should ask them to check your budget in relation to salaries.

Creating an accurate, workable plan and budget allows your team to get the money it needs from finance, keep track of it with accounting and human resources, and succeed. You can succeed only with a good budget. The success of your team or department within your budget looks good for your team, for you, and for your boss. It also helps the bottom line of your organization.

Eight Steps to Creating a Budget

Now that you know your audience, you're ready to begin tackling your first budget. As you work through this section, take your time and make sure that you get a basic understanding of the ideas. If anything is too complicated right now, don't worry. It will show up in more detail in the next 11 chapters.

Choosing Where to Start

There are two basic starting points for a budget. We can look either at what we did before or at what we are planning to do. In the first option, we review a prior year or years and then make changes where we think the future will be different from the past. In the second option, we look at a written plan of what we are going to do and ask, "What will I need to buy? How much money will I have to spend?"

Both approaches are good and you can start with either one. However, if you don't have accurate information about the prior year or you know that this year is going to be very different, then you have to work from a plan, rather than from past results. To make a really good budget, it's best to look at the budget both ways.

Suppose that you have good, actual expense figures from at least one prior year. Does that mean that it's best to start from them? Not necessarily. Sometimes, it's still better to start from your work plan for the new year. This depends a lot on how much production work you do and how much project work you do.

When you're creating a budget for production work, you're probably better off starting from last year's budget. If you'll be working in much the same way, then last year's plan is a good start for this year's plan. However, when you're creating a budget for a project, you're better off starting with your project plan. Because projects are unique, something you've done before is not a good model. Build from your plan so that your budget describes what you actually need to buy, hire, or acquire to succeed on the project. Your budget may be broken into different parts and each part can be done either way—based on the past or on the plan. In this chapter we'll discuss the basics of creating a budget from last year's budget. Creating a project plan and budget is covered in Chapter 5.

Creating a New Budget from an Old One: Step by Step

In this section, we will create a simple expense b
(Continues...)

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Excerpted from Budgeting for Managers by Sid Kemp. Copyright © 2003 by The McGraw Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Preface
1. Budgeting: Why and How
Why Make a Budget? Who Reads Budgets?
Eight Steps to Creating a Budget
Success Review
Manager’s Checklist for Chapter 1
2. The Parts of a Budget
Time Periods of Your Budget
Budget and Vision
Forecasting Income
Expense Categories vs. Account Codes
Key Accounting Concepts
Manager’s Checklist for Chapter 2
3. Gathering Production Figures
Gathering Past Figures
Working with Multiple Periods
Working with Account Categories and Line Item Names
Evaluating the Quality of Your Information
Working with Multiple Periods and Trends
Manager’s Checklist for Chapter 3
4. Creating a Production Budget
Estimation Methods
Planning the Future in Detail
A Sample Manufacturing Budget
Manager’s Checklist for Chapter 4
5. Planning and Budgeting a Project
Define the Project
Create the Work Plan
Calculate the Cost
Tracking a Project
Manager’s Checklist for Chapter 5
6. Checking It Twice
Using a Partner for Proofreading
Errors Created by Spreadsheet Programs
Automatic Cross-Checking in Spreadsheets
Document Version Control
Verifying Budgetary Assumptions
The Final Proofreading Steps
Manager’s Checklist for Chapter 6
7. Preparing for Presentation
Combining Parts of Your Budget
Revising Budgetary Assumptions
Creating Templates and Formatting a Budget
Adding Account Codes
Preparing a Budget Presentation
Presentation Formats
Manager’s Checklist for Chapter 7
8. Budgetary Spending
Getting the Budget Authorized
Adjusting to the Authorized Amount
Setting up Your Budget with Accounting
Spending at the Beginning and the End of the Year
Manager’s Checklist for Chapter 8
9. Tracking Your Budget
Authorizing and Tracking Expenses
Closing a Budget Period
Comparing Estimated Versus Actual Budgets
Overspending and Underspending
Adjusting the Budget
Reviewing Financial Statements
Manager’s Checklist for Chapter 9
10. Budgeting and Human Resources
HR Management and HR Services
Use of Consulting Services and Outsourcing
Departmental Control
Putting It All Together
Manager’s Checklist for Chapter 10
11. Small Business Money Management
Estimating Business Income
Small Business Payroll
General Financial Management
Seasonal Fluctuation and Available Cash
Setting Prices
Budgets for Customer Proposals
Manager’s Checklist for Chapter 11
12. Mastering the Budget Process
Negotiating for Your Budget
Improving Your Estimation Skills
Timing Your Budget Preparation
The 15-Month Budget
Manager’s Checklist for Chapter 12
Index