To keep your business running smoothly and ensure sustainable growth, it is essential to prioritize good financial management. Therefore, it is worth creating a business budget plan that is appropriate for the organization’s reality.
It is from this that you visualize the company’s situation regarding available resources, being able to use them in a more strategic way. Therefore, it is opportune to know how to structure it effectively to be able to enjoy the benefits.
Continue reading this article to understand more about business budget planning and how to set it up for your business!
What is business budget planning?
An organization’s administration cannot exist without its financial management. After all, figuring out how to expand requires knowing the company’s financial situation.
Therefore, the concept of budget planning refers to the management tool focused on projecting the company’s inflows and outflows of resources. Therefore, the objective is to conduct a prognosis on what the company’s financial situation will be like in the future.
To achieve this, budget planning takes into account elements such as costs, expenses, revenues and investments of your business. Evaluating these items allows management to see what the company’s resources are at the moment and how they are used.
In this sense, despite being a forecasting exercise, budget planning considers real and concrete data. In fact, it is quite common to use information from previous periods to make projections.
How does this type of planning work?
As you have seen, business budget planning is made up of four elements, relating to financial inflows and outflows. Each of them plays a relevant role in the financial management of the business and generates important information for decision-making.
Costs are capital outflows related to the company’s core business — such as the costs of manufacturing products and offering services. Expenses, in turn, are costs linked to maintaining the operation, such as renting space.
In terms of inflows, there are revenues. These are the capital generated by your activities, such as the sale of your products. Lastly, investments represent movements aimed at increasing assets and generating more resources.
Together, they provide relevant insights into the business’s financial situation. This way, it will be possible to project values ​​to plan the company’s budget in the future.
What are the types of budget planning?
By now, you already understand what business budget planning is and how it works. However, there are several ways to apply the concept to your business.
Check out the alternatives!
Static
Static budget planning is a more rigid version. This is because it does not consider changes during its validity period and the idea is to strictly adhere to it, within the established range.
Variable
In contrast to static planning, there is the variable model. As the name suggests, it is more flexible and follows the company’s financial situation. However, it is essential to closely monitor the company’s finances.
Continuous
Continuous budget planning is one that must be reviewed regularly. For example, if the company decides to prepare budgets every six months, the planning must be reviewed whenever the financial data is analyzed.
Zero-based
Zero-based planning is the type of projection made without considering old financial data and information. It is created from scratch and requires a lot of attention to define realistic projections.
Matrix
Another common type of budget planning is matrix planning. It is also called collaborative planning because it involves the participation of leaders from each sector of the company to predict the distribution of resources. The information will be evaluated together in the future.
How do I prepare a budget plan for my company?
Now that you understand the types of business budget planning, you need to know how to use it in your company. Below, find out what steps to consider!
Make a financial diagnosis
The financial analysis of the business is the first step in creating the corporate budget plan. The goal is to have an accurate and transparent picture of the company’s finances, resources, and present utilization.
It is therefore important to gather all the information that makes up the budget plan — costs, expenses, revenues and investments. The data will allow you to identify your current financial health.
Financial diagnosis is also advantageous for determining whether the operation is sustainable. If a financial imbalance is identified, for example, you will be able to work on solutions to avoid problems in the operation.
Trace the goals
After diagnosing the financial situation, move on to outlining the business objectives . These represent the level of results that the company hopes to achieve and should be designed according to its potential and the market at the time.
To make your goals even clearer, set deadlines — which can be short, medium or long term. With clearly defined dates, you can create more effective projections and make more appropriate strategic plans.
Set deadlines for data collection and analysis
Setting timeframes for the collection of financial data is also essential. To put it another way, the business needs to generate reports on a regular basis to determine whether the goals have been met or if the plan needs to be modified.
The definition of analysis periods depends on the financial reality and the company’s objectives, and may be monthly, quarterly, half-yearly, etc. Frequency is essential to anticipate problems or identify them more quickly, avoiding greater losses.
Why rely on budget planning?
After reading about this topic, it is worth noting that developing a budget plan can bring opportunities for business management. Firstly, it will be important to structure the main areas of finance, bringing more security to the entire operation.
Another positive point is that it facilitates decision-making. Once you have the updated financial data and the business’s financial objectives at hand, scenario analysis becomes more practical, increasing the chances of making the right management choices.
