It’s time to create your organisation’s budget

The financial year is coming to an end. Most businesses will be having their financial year end in March 2020, and as they start the new financial year, they need to start with new targets. We have also started a new decade. It’s therefore critical that business leaders prepare budgets which will have targets for the whole organisation for the coming financial year.
A budget is very important for every organisation that wants to achieve its long term goals. It’s a tool that the organisation uses as it implements its strategic plan..
A budget should therefore be derived from the company’s strategic plan. All the targets in the budget should be aligned to the strategic plan. If you haven’t done your strategy and budget, time is still there to create one so that you start your financial year and this decade on a good footing knowing what your long term goals are.

There are a number of benefits that an organisation will derive by creating a budget. Firstly, going through the budgeting process forces management to look into the future and plan how the organisation will operate rather than operating haphazardly responding to the environment. As management goes through the budgeting process they will analyse the external environment and assess how it will impact the performance of the organisation into the future.

Issues that might be threats to the organisation will be identified and can be addressed before they affect the future of the business. If any opportunities are identified, the business can take advantage of such to improve the fortunes of the company. This is very essential in ensuring the survival of the business.
The second benefit of budgeting is in coordinating activities between departments thus ensuring that departmental plans are aligned to the company’s strategic plan. Creating a budget is not the sole task of the Chief Financial Officer. This process requires the involvement of all key managers of the company since a budget is a comprehensive financial plan for achieving the financial and operational goals of the whole organization.

As such, managers participate in the budgeting process with the CFO who will in the process have to ensure coordination between departments since the budget is intended to address the acquisition and utilisation of the company’s resources. If the acquisition and utilisation of departmental resources is not properly aligned with the overall organisational goals it will be difficult to attain the company’s objectives.
The third benefit of budget is empowerment through delegation. The involvement of managers in budgeting empowers them through the delegation process. The extra responsibility imposed on managers may motivate the managers because they feel they are being recognised by being given extra responsibilities. Their involvements will also likely lead to more realistic targets being set.

Budgeting enhances communication between the different levels of management and staff. The budget is a formal communication channel that allows senior and junior managers to communicate organisational goals and individual targets to each other. Lower level managers and staff will appreciate what top management aims to achieve at corporate level. This ensures that all staff aligns their goals with organisational goals and work towards achieving these common goals which would have been communicated to them.

The budget document helps managers in decision making. The decision making process becomes efficient and effective as it is guided by the budget. Every decision that managers make should be to enhance the achievement of organisational goals within the guidelines contained in the budget. With a budget in place, all decision makers are working towards the same goal as each decision is made in line with the budget. Therefore any authorisation of expenditure should be in line with what is laid down in the budget.

A budget is very key in performance evaluation of individual managers. It provides a common base for performance evaluations because each manager will be evaluated on how he met the goals he set during budgeting in terms of the costs and revenues over which he has control. The budget can also act as a motivator for managers if compensation is based on the results of the performance evaluation.
Another key benefit of a budget is in tracking the performance of the organisation against the plan. Management can check whether they are achieving the financial goals and objectives of the business by comparing actual performance against targets set in the budget. Managers will have to explain any deviation from the plan and take corrective action to ensure the company meets its targets at the end of the financial year. A company that is not guided by a budget will not know how well it’s performing. For your business to move from one level to a higher level, a budget that will stretch managers to meet higher targets should be in place. A budget is a document that you can objectively use to make staff accountable for their actions and demand improved performance.
Budgeting preparation can be a daunting task. But it should not be like that if you get assistance from those with the right skills. Wishing you all good strategic planning and budgeting as we start this decade.

l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. He is the Managing Consultant of Shekina Consulting (Pty) Ltd, a multi-dimensional consulting firm, and he provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations. He is also a link with international investors intending to invest in the country. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062.