Developing a department budget requires a thorough understanding of the process and the department in question. Consider a departmental budget as a spending plan for the upcoming fiscal year. When preparing the preliminary paperwork, factor in variables related to income and expenses, allowing for a cushion if projected income figures fail to materialize. A sound, workable budget is only as good as the numbers input by the architects of the final product.
Set reasonable objectives for the upcoming fiscal year. Preliminary figures should include expectations for the department’s immediate future. While these initial calculations tend to border on the optimistic side, make an effort to stay realistic with the numbers forecast. Remember that budgets are a work-in-progress, which require tweaking throughout the year, so it is better in the long run to submit sensible expectations.
Seek input. Consult with other members of the department, especially those most familiar with the office’s day-to-day operation, before committing to any permanent figures. Make the employees an essential factor of the budgeting progress. After all, they are the on the front line in any business environment and generally have exceptional insight concerning what does and does not work.
Analyze inflow. Realistic expectations of income require analysis of the preceding budgets. Before inputting preliminary numbers, compare month-to-month, quarter-to-quarter and year-to-year figures from the previous year. If there was an exceptional circumstance connected with last year’s numbers, go back two years. Look for trends that impact revenues. Consider holiday spending if the business is retail in nature. Look at the first quarter of the previous year if the firm handles income tax returns. Whatever the business’ area of expertise, consider factors specific to the enterprise that pump up or devastate incoming cash flow. Assembling this information makes budgeting cash flow a much simpler process.
Analyze outflow. Unexpected expenses can undermine any budget. To keep budget-breakers at a minimum, take a close look at previous budgets to determine trends. Consider personnel. Is anyone retiring? Are layoffs a possibility? If hiring is forecast, what about training and other costs associated with a new employee? Take age of equipment into account when figuring expenses. Ask if computers or printers or copy machines need upgrading in the upcoming budget period. If so, get firm estimates on replacement costs before submitting the final product for review. If stockpiling inventory is part of the department’s budget, consider not only the cost of the stock, but also the cost per square foot to house it and the personnel and equipment needed to manage the product. In short, analyze every detail to make the final product one that works for the entire year.
Prepare the budget. As a last step in preparing the final budget, consult with managers of other departments. Their input could have consequences for the budget for your department. Looking ahead is the primary objective of any budget. Preparing the department budget becomes a straightforward task if the groundwork necessary to its completion is laid in advance. Also keep in mind that a budget is a malleable document, one that is consistent with the goals of the company and easily adjusted if the need arises.
Cheryl Withrow is a writer in Michigan’s untamed Upper Peninsula. Following a teaching career she served alternately as editor of the "Washington County News" and the "Geneva County Reaper," and as associate editor of "Bay Life" magazine. Withrow holds a Bachelor of Science in business with a major in accountancy from Wright State University and a Bachelor of Arts in English from Ohio University.