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It is the process of preparing a detailed statement of financial results that are expected for a given time period in the future It is a vital tool in organizations for directing activities and employees efforts toward the organizations common objectives A budget is a detailed plan, which shows the financial consequence of an organization's operating activities for a specific future time period

Benefit OF budgeting Assit to plan ahead and to formalise goal towards achieving the organisation goal

Facilitates to coordinates activities in the organisaton. e.g requires communication between dept, managers If marketing plan to sell 10unit, production needs to plan and produce 10k unit and purchasing need to plan to acquire necessary raw material for that amount

Internal control to ensure compliance in accordance to

organisaton rule's and regualtion. e.g budget expenditure It provides definite objectives for evaluating performance at each level of responsibility

It can motivates employees to meet planned objectives. Eg incentives for meeting budget Creates an early warning system to avoid potential problems by making changes

Types of budget Divided into two :a) Operating budget consist of plans for all those income generating activities that makes up the normal operations of the organization. Eg budgets of sales, inventory, overhead and research, production, material labour, and development

b) Financial budget is used to control the financial aspects of the business. In effect, it reveals the influence of the operating budgets on the financial position of the organization and its earning potential at end of the budget Period. e.g. a cash budget, budget and pro-forma balance sheet, capital expenditure and income statement

Budgeting System
Technically, a budgeting system is not a decision system; it is a system for implementing decisions. Once the decisions are made, much of the implementation is done through the allocation of resources that control or give incentives to various actions of participants in the organization.

Types of Budgeting System Approach a) Top-down Budget The upper level management establishing the budget Lower- level managers have little influence into the determination of the budget amount and setting the overall goals of the organization

b) Bottom-up Budget Bottom-up budget also known as participatory budget, Allows lower-level managers involvement in the formulation of budget. Process begins at the operational level. Requires more time to move through the process and complete the budget, but ensures involves and commitment at All level of organisaton

c) Zero-based Budgeting

Resource allocation decisions are made through a functionby-function assessment . requires managers to budget their activities as if the activities had no prior allocations or balances -starting point is zero Each dollar spent by management must be justified with a detailed account. Eg what will be purchased, how many labor hours are needed, what problems will be faced,

d) Rolling Budget A rolling budget is a budget continuously updated by adding a further accounting period (month or quarter) and new data when the earliest accounting period has expired.

Management Team

Enable to consider time, effort,support needed to achieve company's goal Forecast changes that would face in the future Identify difficulties and constraints faced by employees

The Shareholder

To know how the business is conducted To know any new decisions made To know future market of products/services To know operation, future plans

Banker or Creditor

Bank to know the business plan before approving a loan The plan give them the indication of returns from the approved loan


Information from the company to influence their decision to use products Shows quality and safety of products

Supplier To consider approval of credit term To know the repayment capability

EMPLOYEES To know the development and performance of a company before join the company


Executive summary Market analysia Marketing and sales strategies Services and product line Organisation and management Funding request Financial The appendix

Executive Summary

Most important section Mission, date, founder, location, employees, branch, product, facilities, banker, summary of future plans


General overview and conclusion of marketing research data that has been collected

Marketing and sales strategies

Marketing strategies include strategies for market penetration, channel of distribution and communication Sales strategies include sales force strategies, sales activities


Describe the uniqueness of product or service Identify the problem for which the service or product would be able to provide a solution

Organisation and Management

Organisation structure Details about the ownership of company Profile of management team and members of the board directors Remuneration plan Administrative budget


Shows financial projection (cash flow Performa, Profit and Loss Performa, Balance Sheet projection

The appendix

Product picture, details of market studies, licences, legal documents, accountant, auditor

Guidelines in Preparing Business Plan

Keep short but cover the key issue (Meeting with investor for details) Be focused on one or two products

Guidelines in Preparing Business Plan

Do not have unamed or mysterios people in the management (Mr X)

Estimation of potential sale on the basic of the marketing study