Budgeting in the enterprise

Budgeting an enterprise is one of the most important components of economic planning, which in turn is part of financial management. In fact, it is a special kind of planning, which is based on the principles and methods of execution, compilation, monitoring, evaluation and adjustment of budgets, presented in the form of a specific form of plans. In another way, it can be said that budgeting at an enterprise is a planning of the future economic activity of an organization, the results of which are formalized using the system of budgets.

Its main purpose is to develop, as well as increase the validity and effectiveness of all kinds of managerial decisions. The mechanisms that have budgeting at the enterprise can be effective when trying to make the workflow more efficient, to get new resources, to increase planned targets. The benefit is obvious.

Budgeting at the enterprise allows:

• Optimize profits and costs;
• Coordinate the activities of different departments of the enterprise;
• Identify the resources in which there is a need, and which can be discarded;
• Conduct an analysis of the financial performance of a part of the enterprise or its entirety;
• Strengthen discipline within the enterprise.

It should be borne in mind that budgeting at the enterprise is separated from tax, as well as accounting. Budgets are usually created as part of the current planning. This means that their conditionality with strategic plans is important.

The budget is an operational plan, with which you can determine the ratio of financial flows to a particular unit or activity over a certain period of time. Based on it, you can predict future results, the meaning of doing certain actions.

In other words, the budget can be considered a quantitative expression of plans that are set for a certain period of time. These are plans for:

• Expenses and incomes;
• Investment;
• Use of all kinds of resources;
• Cash flow ;
• Attraction of new sources of financing.

The period of time for which a budget is developed is called the budget period. It is determined by the current planning at the enterprise. The planning horizon (its duration), in turn, has a direct connection with the forecast horizon, and also depends on the instability of the external side of the enterprise.

The budget process is a combination of processes that are directly related to the budget (ie, formation, approval, and control). It is developed in accordance with the internal state of the enterprise.

The budgeting system is a set of those measures that are used to implement the budget process. It consists of the following elements:

• Responsibility centers;
• Financial management structure;
• Methods of budgeting;
• Budget management;
• Consolidation of budgets.

The organization of budgeting in the enterprise is possible if:

• System of responsibility and authority;
• Strict rules of relations between employees;
• Qualified staff;
• Adopted and prescribed functions of the units.

The financial structure of management of the budgetary process assumes:

• Distribution of main and side functions in the administrative apparatus;
• Creating an appropriate system of motivation;
• Creation of high-quality information infrastructure;
• Definition of mandatory accounting centers;
• Definition of responsibility centers;
• The creation of internal regulations, as well as its own regulatory documents.