Yearly Company Budget: Few Tips to remember

As the new financial year has already started, many of us have already completed the budget and many of us are busy to give the final touches to our next year's annual budget for the company.

I've been preparing the company's annual budget for the last 5 years and here is my few tips which may help you to prepare your company budget more accurately!

1. Align your cost with your sales: Your sales department may have given you a ambitious sales budget which will increase your revenue at a great extent but make sure you also taken into consideration all the relevant costs associated with the sales. So your profit margin doesn't grow up drastically.

2. Go though the historical cost and realize the trend: To prepare budget accurately you need to have historical cost, preferably at least 3 years which will guide you the cost pattern and trend of the cost and revenue to predict your next year budget. Some cost may vary months to month. For example, your electricity bill will be lower in winter and higher in summer. Identify the trend of the cost. It will help you to prepare your budget more accurately.

3. Align your budget with new Finance Act: As we know the finance act has already been published and there are a couple of changes which can impact your operation, revenue and cost. So align your budget with the new finance act.

4. Analyze your cost pattern: Not all cost are same. Some are fixed cost, some are variable cost, some are sem-variabe cost. So identity your cost nature, see the occasion of the cost. There could be a license renewal which happens after 5 years or there could be bank guarantee renewal or major renewals agreement. There could be a major promotional event at a certain time. So keep these into the consideration during preparing budget.

5. Analyze your last year performance: You need to analyse your last year performance. Find out where the cost increased dramatically, what were the sectors showing the cost may be increased further, where you have saved a good bucks in the last year. Keep them into your consideration .

6. Use most recent data : You need to have most recent data to prepare your budget more accurately. Try to get the most recent data to get the vibe of the operation.

7. Involve the stakeholders: You can't prepare an accurate budget by yourself. Involve the stakeholders to get their opinions. Involve each department where necessary to get their view and opinions which will help you to prepare the budget more accurately.

8. Go through each of your cost head & sales head separately: You need to analyse each of your cost head & sales head separately. Keep their historical cost. Put notes if needed. Don't rely on the sales budget given by the sales department. You need to scrutinize it.

9. Align the cashflow statement: You may have investment or capex purchase in a certain time of a year and therefore you will need enough cash. So ensure your cashflow budget fulfil this demand. Maintaining positive cash flow is highly pivotal for a success of a company.

10. Review your estimation: You need to review your estimation and get a check by your supervisor or someone who can give you good insights. Reviewing budget helps to prepare a better budget.

11. Accurate Information: Ensure you took the accurate information to prepare your budget. If needed, double check it where necessary. Preparing a budget based on inaccurate budget can ruin all your hard work.

12. Be relastic and optimistic: Being realistic and optimistic is the key norm to prepare a good budget.

13. Keeping supporting information & maintaining link: Keep all your supporting information and link them with budget if possible. Your budgeted amount should come from a analysis. So link your budgeted amount with your analysis sheet so it can justify from where you have derived this amount.

14. Many versions: Budget will have many versions. Keep all the versions so you don't loose any important information.

15. External factors and provisions : During budget you may consider some external factors like (dollar price, impact of war etc) and keep a provision amount to safeguard your budget for any adverse situations.

I hope this helps.

Munshi Muktadir, ACCA, MBA, BBA

Head of Accounts and Finance, BEXIMCO - IT Division