Page 111 - Accounting Best Practices

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Budgeting Best Practices
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against those of ‘‘best in class” companies, and to provide this information
with the budget packages that go out to all departments, so that they can set
expectations for improvements in their areas. This task can be completed
well in advance of the regular budget process.
• Revenue budget. The first part of the budget process is always a determina-
tion by the sales staff of what they think they can sell in the upcoming year.
Without this information, the remainder of the budget is impossible to con-
struct. This portion must be completed and returned before any other steps
can be completed.
• Materials budget. The purchasing department uses the revenue budget to
determine its purchasing volumes, which is necessary for forecasting materials
costs based on purchase volumes.
• Automation budget. The industrial engineering staff must determine what
automation it plans to add to the production floor in order to eliminate direct
labor and improve efficiencies. The timing of when these changes will be
completed has a major impact on when to budget changes in labor and effi-
ciencies into the forthcoming budget.
• Personnel budget. There must be a separate budget that outlines all the staff
positions needed, their average pay rates, and the associated payroll burden.
This number will vary based on the revenue volumes that were previously
determined, not to mention any automation projects.
• Capital budget. The automation budget will feed into the capital budget,
since these projects usually require a considerable amount of funding. There
may be other capital projects that do not run through the engineering depart-
ment, such as for office equipment, so this budget is not normally completed
until all departments have submitted their budgets.
• Departmental budget. Each department must note its expected expenditures,
as well as personnel requirements.
• Cash flow budget. After all the previous budgets are returned, the accounting
staff loads them into the budget model, which determines any resulting profits
or losses, working capital changes, and capital requirements, all of which
feed into the cash flow budget.
• Funding and investments budget. The cash flow budget feeds into the funding
and investments budget. This one is used by the chief financial officer, who
determines either the sources and cost of funds (if cash is needed) or where
it is to be invested and the expected returns from doing so (if there will be
a cash surplus). The results of this budget will also feed back into the inter-
est expense and investment income line items elsewhere in the budget.
• Employee performance budget. Finally, after the budget is completed, the
human resources manager uses it to create an employee performance budget
that links pay levels and bonus payments to the performance levels noted