6 Steps for Budgeting in Management for New Managers
By Indeed Editorial Team
Published May 19, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
If you are new to your company or have been promoted to a new position, you may be seeing your department's budget for the first time. Creating a budget allows you to keep track of every dollar spent and allocated to your department. By understanding how to create a budget, you can build confidence in your financial skills. In this article, we discuss the benefits of budgeting in management, offer tips for managing your budget, and provide six ways you can set it up.
What are the benefits of budgeting in management?
Budgeting in management, whether personal or departmental, allows you to create an overview of your business' finances. Here are some benefits of budgeting in a management position:
Prioritize spending: Budgeting allows you to prioritize what you're going to spend your money on. This allows you to properly allocate funds, knowing the most important budget items that can be covered, while also leaving room for future growth.
Identify where to cut costs: It also allows you to discern which items are essential and nonessential. This helps you figure out where to identify which expenses you could cut, saving your business money.
Forecast expenses: Once you know where every cent of your money is going, you can plan for the future. If you're planning on scaling up production and going to another market, forecast further expenses in that region and the production costs to get you to where you want to be.
Build confidence: As you identify where your money is going, you can begin to feel more confident in your ability to handle your finances.
Focus on long-term goals: Setting your sights on plans and goals for the future allows you to dream about the business' direction. A budget is one process that you can use to build excitement among your team in future goals.
Tips for managing your budget
Managing your department's budget doesn't have to be difficult, especially if you develop a plan. Here are some tips to help you build your first budget:
1. Invest your time by asking budget-related questions
If you're new to the budgeting process, it may be helpful to ask some questions about why you need the budget and what it may be used for. By learning exactly what the budget can be used for, you may know what to purchase with the funds allocated to you. Here are some questions to consider asking yourself before creating a budget:
What is your budget for?
It might be best to have a meeting with your employer to learn what is supposed to be paid out of your budget. Alternatively, check to see what may not be paid out of your budget, as it may be handled under another department's budget.
How does your budget fit in with other departments' budgets?
It may be a good idea to learn the inner workings of your business, especially when you're creating a budget. Speak with your manager to learn how some of the budget items fit with other departments. You can also work with the financial department and other department heads to learn how to effectively manage your budget.
What's the term for your budget?
Budgets are fluid, ever-changing documents. Define the time frame for which your budget works, or the time your budget can go before being reassessed.
How do you pay invoices?
If you're new to being a department head, it may be best to check with the financial department at your organization. Learn how invoices are paid, whether special codes are used to differentiate between different budget items, and how to ask for invoices from clients.
How do you report your budget?
If you're part of a larger organization, you may want to contact your finance department to learn the best way to report your budget. Larger companies may ask you to report back each month. You may also be asked to submit monthly reports on expenses, including invoices and receipts from vendors.
2. Enrol in a finance or budgeting course
Check with the local university or college to see if they offer any courses on budgeting. Most business schools offer budgeting courses that range from one to three days. Even a simple weekend course can teach you how to forecast future budgets, use spreadsheets to create a budget, and create a successful budget proposal for your superiors. One of the most important skills you may gain from taking a short course on budgeting is learning how to read financial statements, which can give you the ability to discusses pertinent financial information with coworkers and superiors.
3. Take ownership
When you take over your department's budget, you can treat the budget like it is your own personal finance budget. Make a list of goals to achieve, and use your budget to create a practical guide for how you are going to get there. It may be helpful to place the goals in a spot you regularly check, like a bulletin board or your computer's desktop, in order to be reminded of them.
4. Track monthly expenses and make corrections
An important part of any plan involves assessing whether the goals and expectations that you have practically work. In a budget, you can check to see if all funds are being used effectively. It may be helpful to put the date that you're going to perform an internal audit in your calendar to prioritize it.
6 steps to creating a successful budget
Creating a budget can be a helpful way to learn how to use the resources that your business has available. Here are six ways to set up a successful budget:
1. Figure out your total income
One of the most important things to learn is the total amount of income that you're receiving every month. The best place to look for this is to learn about your sales figures. After finding those, you can see all the other sources of income that are coming in. For example, you may have access to multiple sources of revenue. If you manage a non-for-profit organization, you may receive income from both government grants and donations.
2. Determine your fixed costs
Fixed costs are the expenses that continue to be the same each month. This may include rent, the monthly fee to host your website, and your payroll. Review your bank statements and determine your monthly costs. Most online banking websites offer features to filter out reoccurring expenses, and this greatly reduces the amount of time it takes to find fixed costs. If you just started a business or begin a new position at a company and do not have a previous budget to work with, use predicted cost to discern what you may spend.
3. Consider variable expenses
Variable expenses are those costs that don't occur every month. There's no fixed amount that your business pays for these costs. Utilities fall into this category as they might increase or decrease depending on the season or an increase in production. For example, if you're in the process of scaling up production at your business, then some variable expenses may increase. Variable expenses can be raised when profits are high and cut back when profits are lower-than-expected.
Although these costs may fluctuate from month to month, and they usually follow a pattern. As you continue to adjust your budget over the next few years, you can learn the rhythms that your budget may take, becoming accustomed to the tips and spikes in expenses.
Related: How to Lead Through a Crisis
4. Consider one-time purchases
Whether it is computer software or a piece of much-needed technology to make the lives of your team easier, there may be some one-time purchases that may arise throughout the year. Include any yearly one-time subscription services in this category, and consider them to be a fixed cost. Try your best to budget for future onetime expenses, looking into the needs of your department for the next year.
5. Combine your findings into a plan
Once you've gathered all the information on your finances, you can create a detailed budget that can allow you to know where your money is going. You may want to total up all your income and expenses to determine the amount of money coming in and the cash flowing out.
As you gather all the data and put together your budget, it may be best to bring in members of your team to oversee elements of the budget. Do your best to provide ownership to other members of your team, delegating certain tasks to complete the budget. You may consider asking for their feedback to help make the budget a part of a team process.
6. Reassess your budget regularly
Track your expenses and share your budget with your team. Your budget helps you stay accountable for your goals, and transparency is important. Reassess your budget and do your best to find ways to create a more efficient budget for the next year. Develop a strategy, and then identify resources that your department may require to reach those goals. Explore whether you can take money from certain line items, and allocate them towards more important processes.
Explore more articles
- How to Use COUNTIF in Excel (With Helpful Tips and FAQs)
- What Is Social Networking? (With Steps for Improvement)
- A Guide to Performance Engineering (Including Tips)
- How Startup Funding Works (With Defintion and Stages)
- What Are the Best Practices for Virtual Leadership?
- A Guide to Distance Learning (Types, Benefits, and Tips)
- Why Use a Thank You Note Template (With Examples and Tips)
- What Is an Accounting Information System? (Brief Guide)
- What Is Configuration Management? (Benefits and How to Use It)
- How to Become a Sustainability Officer (With Skills)
- What Is Referral Marketing and How Can You Implement It?
- What Is a Vertical Merger? (With Definition and Types)