Creating a Budget
Financial Reference Sheets
Future Practice Owner.
Declaration
Please note:
all financial information shared in this document is fictional data that has been created for learning purposes. It is not representative of any true financial data for Vets for Pets or Companion Care. This reference sheet has been based on the initial ‘drawing up a budget’ created by the CMI, and hosted as part of Management Direct.
Original content and information is, therefore, copyright 2017 Chartered Management Institute.
Future Practice Owner.
Creating a Budget
What is a budget?
Budgeting Skills
Negotiation and active listening. Planning and forecasting. Mathmatical skills
Problem solving.
A budget is a statement that depicts expected expenditure and income. This will be under an established set of headings and subheadings, over a set period of time. Budgeting is a key tool for planning and controlling expenditure, allocating funds, enabling progress vs targets to be understood, and will support your practice in achieving its strategic aims and objectives.
The purpose of budgets
There are two key purposes to creating and utilising budgets for your practice which are:
To demonstrate the financial implications of your practice’s proposed strategy and plans. To be used by to enable financial and cost control in the practice.
Future Practice Owner.
Creating a Budget
Budget checklist: Steps to create a budget
1.Understand the key objectives & policies for your practice
To be able to create an effective budget, you will first need to identify the key objectives for your practice, so you’re then able to prioritise in the correct areas. Only once this has been established, and you’ve clearly identified your strategic aims and objectives should you then prepare a budget. In addition, you will need to understand the established policies and procedures in terms of finances, so will need to check if there are established procedures for the development of a budget, who decides the general policies and completes the budget forms, who receives and reviews the budget as a whole, and who accepts budgets and suggests revisions. Budget control checklist 2. Identifying contributing factors When it comes to the formation of budgets, it’s prudent to identify key and limiting factors - this may include the competitive environment, sales volume, and predicted customer flow. This enables your budget to be realistic and practical and ensures you consider external factors such as economic conditions and trends that may influence.
Future Practice Owner.
Creating a Budget
3. Understand what is going in and what’s going out
To truly create an achievable budget, you first need to understand what’s coming in in terms of income sources, and what’s going out in terms of expenditure. This ensures you set yourself up for success by considering whether your budget is realistic and viable, consider what financial options you may need to ultise, and consider expected costs, including staffing and materials.
4. Decide how to create your budget
Types of cost: Fixed & variable
There are multiple ways to create a budget, such as incremental budgeting, which is based on the previous year's figures or zero-based budgeting, which starts from scratch whereby you need to consider each cost from the start of the year. Which ever method you choose, you will need to ensure that the budget is prepared in the same format that is used for reporting in the upcoming period, and that an underlying list of assumptions should be prepared and documented as part of the budget creation process.
Fixed Those costs that will need to be met, and are static, such as permanent-colleague- related costs. Variable Those costs which fluctuate and dependent on level of work, such as qty of materials and products purchased, or ad-hoc advertising costs.
Future Practice Owner.
Creating a Budget
Budget control checklist 5. Collect and source information
Contact and consult any parties which may influence or impact the budget creation process, and do a final check against your practice’s objectives and targets, to ensure they align. Ensure you do final checks on all external and internal factors, which may have a bearing on your practice’s performance, and then ask yourself the following important questions:
Am I clear about strategic objectives and what their impact is?
Have I accurately forecast the number of people to meet the objectives?
Are there likely or can I foresee any future changes?
Am i clear about the income?
Am I clear about the outgoings?
Are there any upcoming factors which may have significant implications on the budget?
Future Practice Owner.
Creating a Budget
Budget control checklist
6. Create the budget
Using all the information sourced, create the budget, keeping detailed notes as to why particular figures have been stated so you can explain how they were calculated. Ensure you build in contingency allowances, just in case things do go wrong, and double-check all the calculations included.
Budget control reccomendations & considerations
Avoid drawing the budget up solo - use and utilise support available
When assumptions are used , ensure these are fully evaluated.
Avoid being over-optimistic, it’s more beneficial to be realistic.
Ensure you are thorough when it comes to gathering information that will be used to influence and contribute to the budget formation.
Future Practice Owner.
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