In a commercial organization it’s like this: no sales - no profit. The process of developing functional (operational) budgets always begins with a sales budget, since without assessing and planning possible product sales volumes, it is impossible to draw up a production budget, procurement budgets and the use of raw materials and supplies, labor costs, etc. In this case, special attention should be paid to the limiting factors of the company’s activities, such as, for example, maximum market capacity, availability of production capacity, mobilization opportunities financial resources etc.
Sales budget
The starting point of any planning process in an organization is to forecast market size and product sales volumes. This data is the responsibility of the head of the marketing service. The role of the accounting analyst is to coordinate the budgeting process and bring together data coming from different sources.
When developing a sales budget, the organization’s management should take into account all external restrictions and forecast estimates related to the characteristics of this type of activity and the market situation (for example, possible actions of competitors or price elasticity for manufactured products), as well as an assessment of general economic business factors that relate to planned period (for example, expected inflation rate or change tax policy). Budgeters must also take into account qualitative factors, such as possible fluctuations in demand or the impact of anticipated changes in specifications or product mix. And only after a thorough assessment of all factors (external and internal) that may affect the volume of product sales should you begin to draw up a budget.
The sales budget looks like a document that shows sales volumes, prices and revenue for the entire range of products. Responsibility for its implementation lies with those who are responsible for the corresponding function in the organization - the head of the sales department and the commercial director.
Sales budgets are developed, as a rule, in prices including VAT, since these are the sales amounts that are indicated in contracts, invoices and other documents with which sales services work; it is in these amounts that funds come to the company’s current accounts, and therefore control The performance of the sales service and its employees is more convenient for such “full” amounts. However, “with VAT” or “without VAT” is an issue decided in each specific case by the organization itself; it is not regulated by anyone from the outside: budgeting regulations are structured as it is more convenient for control.
Let's consider the process of developing budgets using the example of the Selena company (we addressed its activities in example 9.1).
Example 11.1
After researching the product sales market, the commercial service of the Selena company prepared a sales forecast (including VAT), on the basis of which the company’s sales budget for September 20... was developed (Table 11.1).
Table 11.1
Sales budget
Only after the sales budget has been approved, you can begin to develop and detail the production budget.
- As in the following paragraphs, we present the most commonly used job titles of employees responsible for performing certain functions in the organization. In the case of a sales function, the positions may be called both sales director and head of the sales department. ^ Similar to how you can choose an approach in assessing material costs (see paragraph 9.3), the sales price when preparing sales budgets can also be used in assessment with and without VAT. This only determines the method of further processing of the data. In our example, we will use prices that include VAT.
The object of budgeting, information about which is contained in functional budgets, is the functions/business processes of the company. Those. functional budgets contain information about the main financial and economic indicators that characterize the efficiency of business processes performed in the company.
Thus, functional budgets determine the main decisions about the parameters with which the main business processes should be implemented (sales volumes, prices, revenues, production volumes, purchasing volumes, etc.). Functional budgets can contain information in both monetary and physical terms.
On the pages of this site you can find information on the following functional budgets:
On these pages you can find an explanation of why these functional budgets are needed in company management practice. Issues related to the regulations and financial model of budgeting are also considered. In addition, an example of functional budgets is given.
It is very important to note that these are examples of functional budgets, and not some typical and only correct allocation of functional budgets that can be used in any company. The set and format of functional budgets is determined by the company’s business processes, and since they are different in all companies, the functional budgets and their content will vary accordingly, i.e. composition of budget items.
However, after looking at these example budgets, you can, so to speak, look at some of them for your company. If your company already has a system of functional budgets, then you can compare your company’s budgets with those listed on this site.
You may find that some of the functional budgets discussed here are not used in your company, although they should be. Or, looking at examples of functional budget formats that are already used in the company, you may notice that the format of these budgets should be expanded by adding certain financial and economic indicators to them.
All examples of functional budgets given on the pages of this site can be used in the company for very specific practical purposes, which are also discussed on the corresponding pages of the site. Once again, you need to pay attention to the fact that the set of functional budgets presented above should in no case be perceived as the only correct option.
This is just an example. Each company will have to create its own budget classifier.
Note: more information about the use of functional budgets in company management can be found in Part I "Budgeting as a management tool" workshop seminar Alexander Karpov.
Regulations for functional (process) budgeting
The functional budgeting regulations determine how budgeting should be carried out for the company’s business processes and how this will be reflected in the company’s functional budgets.The set of functional budgets, in contrast to investment budgets and budgets of the Central Federal District, is not unambiguous. That is, several options for functional budgets can be developed for the same company.
Since the budgeting object itself, for which functional budgets are drawn up, is not unambiguous, the set of functional budgets may be different for the same company. Business processes of the same enterprise can be described in different ways, therefore the set of functional budgets can be different (see Book 1 “Budgeting as a management tool”).
Example general scheme functional budgeting regulations are given at Figure 1. In order not to clutter and complicate perception, this diagram does not show all possible relationships between the various sections of functional budgeting.
Fig.1. An example of a general scheme of functional (process) budgeting regulations
The above-mentioned pages of this site discuss the basic principles of regulation of functional budgeting in the context of all functional budgets, indicating important points inherent in every budget. An example of functional budgeting regulations is also given for each functional budget.
Note: More information about the functional budgeting regulations can be found in Part II "Regulations of the budgeting system" workshop "Budget management of an enterprise", which is conducted by the author of this article - Alexander Karpov.
Modeling of functional budgets
Each company may have its own set of functional budgets, and each of them may use a different model. That is, even if two different companies use the same set of functional budgets, the budget models themselves may differ.The complexity of budget models should be selected taking into account the manageability of financial and economic indicators, their significance and actual dynamics. Also, when developing functional budgets, it is necessary to ensure that the information they contain is sufficient to consolidate financial budgets in terms of current activities.
It is impossible to build without functional budgets the correct scheme consolidation of financial budgets. One of the common mistakes that companies make when implementing a budgeting system is precisely that they do not have functional budgets that correspond to such a budgeting object as “Business Process/Function” (see Book 2 “Budgeting System Regulations” ).
This all comes from the fact that one of the basic principles of organizational design is violated, which is that the primary elements of the system are functions/business processes, and the secondary elements are the divisions, that is, the performers of these functions. When building a budgeting system, a company wants to implement budget formats that would allow it to achieve all budgeting goals at once (see Book 1, “Budgeting as a management tool”).
The end result is a mishmash, and none of the budgeting goals are achieved. That is, most often when developing budget formats, only linking them to departments is carried out. Objects such as "Business Processes" are not taken into account at all. In other words, it results in a mixture of different functions when, for example, OT&P may be responsible for preparing summary data on labor costs, but this does not mean that this entire amount should be in the OT&P budget. The HSE manager should only be responsible for the salaries of his employees.
A similar example is with transport. If the head of the transport department is responsible for consolidating transport costs by collecting applications from departments, this does not mean that he should alone be responsible for all transport costs.
The same picture emerges, for example, with energy costs. The chief energy engineer may be responsible for consolidating the planned total energy costs, but this does not mean that he alone is responsible for this entire amount. And if this item is only in his budget, then by this logic it turns out that it is he, and only he, who is responsible for this item. As a result, the company gets confused when conducting plan-fact analysis and trying to introduce real responsibility for the execution of budgets (see Book 4, “Financial Structure of the Company”).
To prevent this from happening, you need to adhere to the following rule. Functional budgets are prepared to consolidate financial budgets and to improve the efficiency of the business processes to which they correspond. Budgets of the Central Federal District are drawn up for the purposes of motivation and responsibility of departments for achieving financial and economic performance indicators of departments.
Information from the budgets of the Central Federal District should not be used for further consolidation of financial budgets (with the exception of data on the variable part of remuneration, i.e., material incentive funds of the Central Federal District). The information contained in the budgets of the Central Federal District is the final destination. This information is needed not for consolidation purposes, but to monitor the performance of financial responsibility centers (FRCs), evaluate their activities and their motivation.
Very often this principle is violated, and as a result the company gets many problems. Perhaps the company is also trying to save on paper (and it seems like time is also saved) and does not introduce, as it may seem at first glance, unnecessary functional budgets, but practice shows that this opinion is wrong.
Note: More information about the development of functional budget models can be found in Part III "Financial model of budgeting" workshop "Budget management of an enterprise", which is carried out by the author of this article -
budgeting financial management
It is necessary to distinguish between the concepts of budgeting and budget. So, if budgeting is the process of drawing up and implementing this document in the practical activities of the company, then the budget is, first of all, a document that reflects the quantitative indicators in accordance with which the enterprise conducts its business activities.
Budget is financial plan, covering all aspects of the organization’s activities, allowing you to compare all costs incurred and results obtained in financial terms for the upcoming period of time as a whole and for individual sub-periods. .
A budget is a financial forecast approved by the head of an organization, which defines the main limits of expenses and costs, standards for financial results, and various target financial indicators. The budget includes planned financial estimates, projected volumes of attracting external financial resources (loans and investments), conditions for their receipt, etc.
As noted earlier, budget is a very broad concept and each enterprise interprets it in its own way and each company has its own classification of budgets.
Depending on the tasks set, the budget can be general (general) or private, flexible or static.
A private budget is an activity plan for a specific area of activity (division) of an organization. Given the versatility of an organization's activities and the interrelationship between certain types of activities, private budgets are closely interconnected.
The general (general) budget is a coordinated plan for the organization's activities, developed as a whole based on the main budgetary factor. It combines the private budgets of the organization's departments. The general (general) budget consists of two parts: operating and financial budgets.
Operating budget - current, periodic, characterizes planned operations for the upcoming period. The purpose of such a budget is to develop a profit-loss plan. If the main budget factor is sales volume, then it is formed from such auxiliary estimates as: sales budget, production budget, material costs budget, labor costs, overhead budget, general and administrative expenses budget, budget income statement.
The financial budget reflects the expected sources of funds and directions for their use. The purpose of the financial budget is to plan the balance of receipts of funds from activities and expenses associated with the implementation of activities in such a way that a normal level is maintained financial stability enterprises during the budget period. Its components are capital investment estimates, movements cash and projected balance.
The form of budgets, in contrast to financial statements, is not standardized, its structure depends on the type of activity and size of the organization, the object of planning, and the degree of qualification of the developers.
A static budget is a budget planned for a specific level of implementation. All private budgets that are part of the general (general) budget are static, since the income and expenses of the enterprise are predicted in the components of the general budget based on a certain planned level of implementation. In a static budget, the costs of an organization (division) are planned. The static budget includes income and costs based on the planned sales volume.
A flexible budget is the link between the planned budget and the actual results achieved. It is compiled after analyzing the impact of changes in sales volume on each type of cost. It takes into account changes in costs depending on changes in the level of implementation, so a flexible budget represents a dynamic basis for comparing achieved results with planned indicators. The basis for drawing up a flexible budget is the division of costs into variable and fixed. In this budget, the variable costs of the organization (division) are calculated based on standards per unit of production and sales level. Fixed costs do not depend on the business activity of the organization, so their amount remains unchanged for both static and flexible budgets. A flexible budget includes income and expenses adjusted to the actual sales volume.
A budget can have an infinite number of types and forms. Unlike a formalized income statement or balance sheet, the budget does not have a standard form that must be strictly followed. The structure of the budget depends on what the budget is subject to, the size of the organization and the degree to which the budgeting process is integrated into financial structure enterprise, what are the qualifications and experience of the developers.
Budgets are presented in the following table 1.1:
Table 1.1
Classification of types of enterprise budgets
|
Classification feature |
Budget type |
|
By area of activity of the enterprise |
Operating budget |
|
Budget for investment activities |
|
|
Budget for financial activities |
|
|
By type of cost |
Operating cost budget |
|
Capital budget |
|
|
By breadth of item costs |
Functional budget |
|
Comprehensive budget |
|
|
By development methods |
Fixed budget |
|
Flexible budget |
|
|
By time period |
Monthly, quarterly, annual |
|
By period of compilation |
Operating budget |
|
Current budget |
|
|
Forward budget |
|
|
By continuity of planning |
Self budget |
|
Continuous (sliding) budget |
|
|
According to the degree of information content |
Enlarged budget |
|
Detailed budget |
All these types of budgets (Table 1.1) are necessary for making a forecast of the financial condition of the enterprise and for carrying out item-by-item analysis. This classifier allows you to group budgets by type of activity to simplify their consolidation into the main financial reports.
The tool of the budgeting process is budgets. The relationship between budgets is shown in Fig. 1.1.
Rice. 1.1.
The production budget forms the cost of production. General organizational (administrative and commercial) expenses supplement production costs and form the full cost of sales volume and serve to draw up basic budgets: budget of income and expenses, cash flow budget, balance sheet.
Many heads of organizations, when building a budgeting system, proceed from certain concepts. There are many budgeting methods and each reflects a certain planning concept.
Speaking about methods for developing budgets, the following methods can be distinguished:
Increment method. It is traditional. The following approach is used: the basis for its preparation for the coming period is based on data on expenses and income for the previous period. Then these data are adjusted taking into account possible changes in prices, as well as possible changes in the volume of product sales. Thus, budgets are prepared on the basis of the increase in expenses and income from the achieved level of activity.
The disadvantage of this method is that ineffective decisions “laid in” in the previous period of activity are transferred to the budgets of the following periods.
Zero basis method. The essence of the method is that each type of activity carried out within the framework of a financial responsibility center or structural unit must first prove its right to further existence by justifying its future economic efficiency allocated funds. As a result, management receives information that allows them to more accurately determine priorities.
When comparing these methods, their disadvantages and advantages are revealed. Budgeting using the incremental method is simpler. Budgeting based on a basis is more labor intensive. If applied to all budgets being developed, the process of its preparation is time consuming.
- - flexible budget method. The report is compiled not in absolute numbers, but as a percentage of sales volume. The advantage of this approach is that if the business situation at the enterprise is bad, budgeting a percentage of sales volume is often easier. The risk is that with this approach it is difficult to pay due attention to running a business.
- - line-by-line budget method. It is a long list of items, and the assessment is carried out for each item separately. The larger the organization, the more difficult it is to use this method. This method is often used in government organizations due to the scrupulous calculation of all indicators. Monitoring the implementation of such a budget is very difficult.
- - stock method. Under this method, expenses are planned across the broadest categories. The main advantage of the method is its simplicity; the disadvantage is that there is no assessment of individual decisions and their possible impact on the organization.
The choice of one or another development method, types and forms of budgets is determined based on the specifics, goals and objectives of the organization.
Functional budget is formed on the basis of the operating budgets of the enterprise. The economic activity of an enterprise can be represented as a set of certain functions. In general, the set of these functions may look like this: sales, purchasing, production, storage, transportation, administration (management), financial activities and investment activity.
Purpose Drawing up functional budgets is to determine the need for resources for various areas of the enterprise. Functional budgets reflect the main decisions about the parameters with which the company’s business processes should be implemented (production volumes, prices, purchase volumes, etc.).
Sales budget.
The sales budget contains information about part of the economic indicators that characterize the effectiveness of the sales business process. All information on this business process is usually reflected in two budgets: the sales budget and the business expenses budget. The sales budget reflects the estimated volume of product sales, sales prices and possible revenue from the sale of these products.
Business expenses budget.
It contains information on indicators that mainly characterize the effectiveness of the sales business process. Selling expenses reflected in this budget include all costs associated with the sale of products. This is the variable part wages marketing department employees, transportation costs associated with delivering products to consumers, marketing costs, advertising, etc. The business expenses budget must ensure that the sales budget is met. These two budgets must be interconnected and any change in one of them must lead to adjustments in the indicators in the other. The business expenses budget format includes the following indicators:
1) the total amount of commercial expenses for the enterprise;
2) variable selling expenses (change in proportion to changes in sales revenue and volume of products sold);
3) fixed business expenses;
4) the share of commercial expenses in sales revenue;
5) the share of transportation costs in sales revenue;
6) the share of expenses for product promotion in revenue;
7) the share of expenses for maintaining and servicing retail outlets in revenue;
8) profitability of commercial assets.
Production budget.
All information about the efficiency of the production business process is reflected in two budgets: the production budget and the production expenses budget.
The production budget contains information on production volumes in physical terms in the context of the range of products produced by the enterprise, as well as information on the degree of use of the enterprise's production capacity. The production budget is the source document for operational management production processes. The production budget format includes the following indicators:
1) production volume by type of product;
2) percentage of production capacity utilization;
3) equipment utilization rate;
4) level of work in progress;
5) level of labor productivity.
It is necessary to pay attention to the fact that part of the indicators of this budget is calculated by product groups, and part of the indicators by production lines. At the same time, products from various product groups can be produced on one line. Therefore, such an indicator as the percentage of production capacity utilization does not duplicate the indicator of equipment utilization rate. Equipment utilization rate shows how efficiently production lines are used according to production plan. And if the percentage of production capacity utilization is less than the equipment utilization rate, it means that the company produces a wide range of products, but in small volumes. The cost indicators of the production business process are reflected in the production expenses budget.
Budget for production costs.
This budget reflects all indicators associated with the enterprise’s costs for producing the volume of products that was planned in the sales budget. At the same time, this budget may also reflect indirect expenses of the enterprise in addition to direct ones. The production cost budget format may contain the following indicators:
1) the total amount of production costs;
2) variable production costs;
3) fixed production costs;
4) percentage of compliance with production standards;
5) production cost for each type of product;
6) finished product inventories;
7) profitability of production assets.
Procurement budget.
It contains information about economic indicators characterizing the supply business process. Depending on the complexity of organizing a given business process at an enterprise, the structure of the procurement budget is also selected. If a company handles almost all purchases in one structural unit, then one procurement budget is developed, if in several structural units, then its own procurement budget is developed for each of them. As a rule, in large companies, to control supply activities, a separate group of specialists is created to monitor market prices and control the purchasing activities of the enterprise.
Payroll budget.
It contains analytical information on departments regarding labor costs and assessing the effectiveness of the motivation system operating in the company. The wage budget must provide all information on the company’s wages, and must also reflect a system of restrictions on the maximum amount of permanent wages and the minimum amount of the variable part of wages. The salary budget format may include the following indicators:
1) total wage fund;
2) total variable wage fund;
3) total permanent wage fund;
4) labor productivity;
5) staff turnover rate;
6) wage fund by structural divisions;
7) wage fund in the context of main business processes.
Administrative expenses budget.
Administrative expenses are the most difficult expenses to link directly to the business. It is believed that administrative expenses should not exceed 5% of the company's revenue. Otherwise, they will have a negative impact on the efficiency of the enterprise. Typically, this budget includes the following indicators:
1) total administrative expenses;
2) the share of administrative expenses in the company’s revenue;
3) administrative expenses by structural divisions of the enterprise.
There are several main approaches to creating budgets:
1) budgets for the subject of management:
A) monetary (cash flow budgets - BDDS);
b) economic(budgets of income and expenses - BDR);
V) natural(in-kind cost budgets - NSB);
2) budgets by units of measurement used:
A) cost:
- actual cost- reflect this or that value in monetary units, without reflecting money or cash flows as such ( BDR and budget on balance sheet);
- monetary (BDDS);
b) in-kind cost(budget for work in progress balances at the beginning and end of the period);
3) budgets by level:
A) operating rooms (in the Central Federal District);
b) functional (in various areas of activity);
V) final (for the enterprise as a whole).
Operating budget– budget describing business operations separate division an enterprise bearing a certain financial responsibility; in essence, the operating budget is a tool for delegating authority and responsibility to each central financial institution for the financial indicators related to it. Each CFD corresponds to ONLY ONE operating budget, i.e. the total number of operating budgets in an enterprise is always equal to the number of central financial districts formed in it.
Functional budget is a budget designed to determine the resource requirements for various areas of activity:
- sales(sales budget);
- procurement(budget for purchasing raw materials);
- production(production budget);
- storage and transportation(budget for direct and overhead business expenses);
- administration (management)(administrative expenses budget);
- financial activities(budget of income and expenses for financial activities);
- investment activity(income budget for investment activities).
Functional budgets are formed by items of operating budgets, grouped according to functional characteristics(The relationship between operating and functional budgets is presented in Table 3.1). A system of functional budgets, in accordance with which sequential planning and accounting of results takes place economic activity the entire enterprise is called budget structure .
Table 3.1 – Matrix of the most common relationships between operational and functional budgets
| Functional budgets | Central Federal District | ||||
| Costs | Income | Marginal income | Profits | Investments | |
| 1. Sales | + | + | + | + | |
| 2. Procurement | + | + | + | + | |
| 3. Production | + | + | + | + | |
| 4. Storage | + | + | + | + | |
| 5. Transportation | + | + | + | + | |
| 6. Administration (management) | + | + | + | ||
| 7.Financial activities | + | + | + | + | |
| 8.Investment activities | + | + | + | + |
TO in-kind budgets include budgets for goods, inventories and non-current assets . They reflect the movement of all assets of the enterprise, except cash. These budgets can be maintained in both monetary and physical units, and there should always be the possibility of replacing one unit of measurement with another if the need arises. The characteristics of functional budgets by type of valuation are presented in Table 3.2.
Table 3.2 - Characteristics of functional budgets by type of valuation
Obviously, each functional budget relates to to one of three types of budgets:
1) NSB in the form of a budget of goods, inventories and non-current assets;
In accordance with this classification, functional budgets are consolidated and form the corresponding final budgets. For example, the budget for direct production costs, the budget for overhead costs, the budget for commercial expenses, etc., when grouped, form the final BDR.
Thus, the target function of budgets industrial enterprises includes the function of maximizing final financial results, as well as a number of restrictions imposed by financial stability factors (3.1), (3.2):
KFR = F (K1, K2, K3...H1, H2, H3...) - to maximum,(3.1)
FS (L, CHOC, SS...) >= FS (norm L, norm CHOC, norm SS), (3.2)
where KFR – final financial results;
K1, K2, K3... - controlled external influences;
H1, H2, H3... - uncontrolled external influences (predicted trends in the external environment);
FS – level of financial stability;
L, NWO, SS... - factors of financial stability: liquidity (L), the amount of net working capital (NWK), the share of equity in sources of financing (SS), etc.;
norm – normative meaning indicators of financial stability.
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