Regardless of your industry, having and sticking to a budget is an essential aspect of running a business. Each fiscal year, new budgets must be proposed and approved. This process requires adequate record-keeping, careful accounting and a close look at the money your company is spending. Fortunately, with the proper preparation, it’s possible to write a detailed budget proposal that will set your company on the right path moving forward.
Budget proposals don’t have to cause stress or conflict between you and the CFO, board or other company decision-makers. To keep things simple, your draft should follow a simple formula of need/research/justification and contain certain standard elements of a budget proposal.
Needs are things that you will actually require going into the next fiscal year. Examples are a new employee, up-to-date software or even office furniture. Needs should be presented in order of importance. Understand that you may have to forgo lower-priority items in order to secure those that are more pressing.
Researching the cost of your needs is the bulk of the work that goes into preparing a budget proposal. Sometimes, managers will split this task to their staffing experts. For example, Dennis was never trained on radiology equipment and isn’t familiar with it in the way that his radiology technician Robin is. It makes sense, then, for him to ask her to do that research.
The justification section of the proposal should be the bulk of the document and provide thorough, well-researched reasons for each of your requests. When it comes to necessary equipment, justifications are often simple to write. For example, if there is a new operating system for your radiology equipment, there is little choice not to purchase it.
Personnel changes are more complicated when it comes to justification. Dennis has been campaigning to get his team merit raises and offer a promotion to Ellie, a member of his team. Whenever he has had a chance, Dennis praises his staff and brings them to meetings where they can have visibility. Had he not kept his team members visible in this way, his boss might not understand how important their work has been to the company.
During your employee justification, you should not ramble, and instead, you should provide solid examples of why. For example: “Steve and Robin have been working overtime consistently for the past six months. After careful observation, it became obvious that they were working up to speed, but the level of work they are tasked with is too much to handle in a 40-hour week. The overall cost of overtime for my team is more than the annual salary of a new employee.”
Focus more on what your needs are and how you will justify the budget for them. Your budget proposal should be written in clear sections to ensure that you are not missing any critical details.
To write a budget proposal, it’s important to take some time to consider what is working and what needs you have. Before he begins to examine his department in this budget proposal sample for business, Dennis takes a moment to simply free-write about his department. This exercise will serve as a starting point when he focuses on his main areas of concern. The first of those is employee needs.
In this example, Dennis knows that the amount of work that his department is responsible for has grown to the point that his star employees are starting to complain about being overworked. This means that he will need to justify another employee hire. He also has a star employee that he will want to promote to a supervisory position, on top of the merit raises the rest of his team have earned.
Dennis would also like to offer training and conference attendance to his employees if they choose to take it. While conferences can be a large expense, sending one of his top performers could be invaluable in terms of industry knowledge. Extra training classes could reduce the number of working hours spent on hiring out contractors.
In this example, there are also some issues in the break room. Staff haven’t complained about it, but Dennis wants to replace the chairs before they become uncomfortable. The rest of the systems that his team uses are in good order, so these needs are minimal. If he hires his new employee, Dennis will need to supply them with all of the equipment they will need, too.
Dennis will make a note about researching the equipment that his staff uses to ensure that everything is safe and up-to-date. When working in an industry that has updates regularly, such as the medical field, many of these expenses are a given. If you need a certain update or procedure conducted on your equipment to make it usable, doing so is essential.
Dennis’s team is going to be the main support for a major project. This project has been handed down by his supervisor, Joyce. She told him that this project needs to be his top priority. Despite the fact that Joyce is his boss, she does not handle the budget. She will be providing supplementary information about the project attached to Dennis’s request.
Now that Dennis has written down the major things that he wants to put into his budget proposal, he can begin to break it down. The next step he will take is to do thorough research. In this step, Dennis remembered that he wanted to promote an employee, Ellie.
Dennis will have Ellie do a portion of the research as well, but he will check her work when she turns it in. Because she is extremely familiar with the equipment her team uses, she has better insight into the costs and value than Dennis does. He will ensure that it is clear what parts of the proposal Ellie completed.
When you are submitting your budget proposal, you should mention similarities that will favor the result you want. A good example would be giving your star employee a promotion. You will first need to find out what her new title would be and then research how much that individual would make if they left for a competitor. Showing that you are offering market value for her work but not overpaying will reflect positively when reviewed by decision-makers.
There is no set amount of time that you should spend researching. If you have access to them, looking over old budget proposals that have been approved will give you an idea of how much justification will be needed per item. Seeing older budget proposals will also give you a template to follow as you write your proposal.
When completing the first section of your proposal, start with the highest priority and make your way down. Dennis will begin with the project that Joyce gave him. While he is writing about the needs for this project, Dennis will outline the requirements and annotate when Joyce or Ellie gave him particular information. If either Ellie or Joyce mentioned a need that he didn’t consider, Dennis would put their paragraph in with annotated credit for the work done.
This project is going to need extensive work to be completed. If a project requires you to hire contractors or use employees holding certain certifications, you should include both options if you can. Typically, you want to be able to handle a project in-house; however, different industries have different needs.
After seeing to the needs of the project, Dennis feels that his next priority is his staff. He will highlight their work and mention them by name, if possible. Dennis is also prepared to show some of the work that his employees did. He will illustrate the level of work that is being done, the market value for that work and then show how he is keeping up with that value.
The minor equipment that Dennis wanted, in this case, will be left off his budget entirely so he can focus on his staff and their project.
The term budget cycle refers to the time frame that the budget covers. Some companies use annual cycles while others use monthly. Many companies follow monthly, quarterly and annual budget cycles. The larger the business, the more oversight the budget will naturally need. As we have explored above, there are typically many moving parts per department.
These budgets make it easier for your finance department to do their job, since they can take your budget proposal and prepare the needed reports. These budget proposals can also highlight pain points within an organization. The finance department will then raise or lower budgets accordingly. These budget frames will help managers like Dennis plan projects for his team.
There are several phases of all budget cycles. Each one of them is composed of some smaller steps and preparation. Depending on your industry, you may need to implement more measures.
Preparing the budget is the first step in the budget cycle. You should propose a budget for your finance department or other decision-makers to review. Follow the steps above when you are putting together your proposal. Find out what your specific departmental needs are, research them and then justify them. Try to keep your justifications precise instead of vague, so you paint the most transparent picture possible.
The budget approval phase tends to take the most time of any in the cycle. After carefully assembling your budget proposal, you will send it to the finance department, CFO or board. They will then read it over and typically send it back with questions or suggested changes.
Typically, you will then take their comments, rework your proposal and send it again. This step will likely repeat until the powers that be approve your budget.
This particular step can cause a lot of ruffled feathers. It is important to remember that you are all working toward the same goals as a company. The finance department, CEO or board has a different snapshot of your company than you do, so they may need more explanation or have different ideas as to how any available funds should be allocated.
Once the funds have been approved for your use, you can begin to implement your budget. If you have done all of the work appropriately, your budget should be a statement of your department’s strategy and trajectory for the cycle. It’s important to rely heavily on this framework as the fiscal cycle progresses.