How Can You Create A Budget Tailored To Your Financial Goals?
To reach your specific financial goals, you have to create a detailed budget plan. The term budgeting refers to the business planning process. The aim of budgeting is to create a budget that reflects the planned future of the company in the form of numbers.
Budgeting is therefore to be seen as one of the most important controlling instruments because, by providing the plan data type, it provides the basis for carrying out the plan-actual comparison in the controlling control loop.
Budgeting therefore defines certain target values that need to be achieved within the planning period. In addition to monetary values, quantitative and qualitative parameters, such as output quantities or permissible error rates, can of course also be planned as part of budgeting.
The budget typically contains different sub-plans: e.g. sales plan or sales plan, production plan, material plan, personnel plan, investment plan, marketing plan, cost center planning, etc., from which the company-wide income statement, financial plan and planned balance sheet are then derived. Particularly in a dynamic environment, it is important to ensure a high degree of integration between the income statement , financial plan and budgeted balance sheet.
Why Is Budgeting Important For Aligning Financial Goals And Reality?
Budgeting is key for aligning financial goals for every customer profile. Depending on the company’s controlling concept, the planning of the profit and loss statement (income statement) is carried out at the profit center, cost center group or cost center level as well as at cost types or general ledger account level. In any case, budget planning should be based on the organizational structure of the company.
Especially in corporate groups that also require efficient investment controlling, the general ledger accounts or at least the cost types must be standardized through a group-wide chart of accounts or cost type framework – ideally supported by cost accounting – as this is already part of the structuring of the budget Group-wide reporting and key performance indicators system can be prepared. The basis for effective and efficient investment controlling is created.
What Steps Can You Take To Set And Prioritize Financial Goals?
There are some obligatory steps to achieve your or your business’s financial goals. Ideally, budget planning takes place before the fiscal year to be planned begins. The duration of the budgeting process should be kept as short as possible and essentially depends on the size of the company, the planning complexity and the controlling software used.
When the budget is made and how long it takes depends largely on the dynamics of the industry. As a guideline, the more dynamic the industry, the faster and more flexible the budgeting process and budget structure should be.
We recommend implementing a timing concept! In any case, budgeting should be seen as part of the timing concept and integrated into it.
How Do You Build A Personalized Budget That Reflects Your Goals?
It is possible to build a specific and personalized budget for your aim. If your financial goal is combined with actual values from previous months in the current financial year and enriched with new information during the year, this is called a forecast or an extrapolation. The forecast becomes increasingly important, especially in a dynamic environment.
The ability of sales control to accurately estimate future sales is essential for the quality of the forecast. If you can estimate future sales well with the help of sales controlling, you have a good basis for operational liquidity management, which can also be referred to as working capital management.
Budgeting should be understood as a process that brings together all the activities involved in creating, approving, enforcing and adjusting budgets. Budgeting is therefore an important controlling tool for management, as budgeting promotes the coordination of activities in the company and thus the mutual flow of information.
All functions of the organization must be included in budgeting, as they influence each other to a greater or lesser extent.
Strictly speaking, it must be assumed that each subplan also influences the other functions and thus also the subplans derived from them. This means that several iterations are usually necessary as part of the planning.
In order to allow an efficient and effective and personalized planning process, we recommend developing a bottleneck-oriented planning process that can be assumed to lead to the smallest possible number of iterations.
What Are The Best Practices For Tracking And Adjusting Your Budget?
Some practices can be announced for adjusting your budget. Let me remind you of common and valid practices regarding monthly budget planning. A change in sales of, for example, 15% not only changes the success planning, but also the financial planning as follows: The increased sales increase the trade receivables, which can lead to additional financing requirements if the payment term is long.
In addition, additional materials may be required to provide the service, which in the worst case scenario will have to be paid for before the materials are received. There is a need to pre-finance the material. The additional sales will usually result in an increase in the sales tax burden.
Ideally, the increase in sales is also associated with additional profit, which affects equity and leads to an increased tax provision, which also triggers a change in the flow of money to the tax office in the following year. The additional financing requirement also results in additional interest costs, which represent an outflow of liquidity.
You can see from this simple example that success planning , balance sheet planning and financial planning are very closely intertwined and that processing this complex planning issue can only be successful if there is sufficient integration across success, balance sheet and financial planning. Otherwise, it may happen that we can provide formal financial planning, but it is not suitable to provide appropriate decision-making support in a situation that is difficult from a liquidity perspective.
Can Technology And Apps Help Simplify The Budgeting Process?
Thanks to both technology and artificial intelligence-based technological tools, you can meet your budget planning needs, whether small-scale or large-scale. You can benefit from mobile applications that help you organize the necessary budget planning and spending controls for both your business and your individual financial goals. You can achieve your financial goals by creating a budget plan easily and effectively through these mobile applications.
You can automate your strategies and decisions in your budget planning process by choosing the one that best suits your needs among the many applications prepared with the support of financiers specialized in mobile application markets.
See you in the next post,
Anil UZUN