Last week, you completed the last piece of your budget financials for the new financial year, your Cashflow Budget.
Congratulations on completing your 3 months budget creation journey! I hope you have learnt a few things along the way.
You should now have a phased Profit and Loss budget, a budget Balance Sheet and a budget Cashflow Statement.
RESPONSIBILTY AND ACCOUNTABILITY
Now that you have created these budgets for your business, you need to assign responsibility and accountability for components of the budgets to personnel in your organisation. I would suggest the following as an indicative responsibility assignment:-
Profit and Loss Budget
- Sales Budget responsibility – Sales Manager
- Distribution Overheads responsibility – Distribution Manager
- Selling Overheads responsibility – Sales Manager
- Administration Overheads responsibility – Accountant, Finance Manager or Virtual Part-Time CFO
- If you are a manufacturer, your manufacturing budget – including direct materials, direct labour, direct overheads and Production Overheads responsibility – Production Manager
- If you are a distribution company, your cost of sales budget responsibility – Purchasing Manager
- If you are a service entity, your direct cost of services responsibility – Operations Manager.
Balance Sheet Budget
- Accounts Receivable Budget responsibility – Accountant, Finance Manager or Virtual Part-Time CFO
- Inventory – Raw Materials responsibility – Purchasing Manager; Work in Progress and Finished Goods responsibility – Production Manager.
- Accounts Payable Budget responsibility – Accountant, Finance Manager or Virtual Part Time CFO
MEASUREMENT
Once you have assigned responsibility for budget areas, you need to ensure the relevant personnel are accountable for their budget areas, by measuring and reporting actual numbers against the budgets every month. This will require the development of a reporting structure and comparison reports. These reports and numbers should form part of your monthly review meeting focussing on exceptions that need action, explanation or further investigation. Such reports and analysis can be prepared by the Accountant, Finance Manager or Virtual Part Time CFO to ensure independence and impartiality.
SUMMARY
Use this week to assign responsibility for budget targets and develop a reporting and accountability structure so each month you can measure and compare the progress of your actual numbers against your budget numbers. Once you start measuring things, it is amazing how quickly improvement can actually come from the simple measuring process itself, as well as the identification of improvements opportunities.
All the best for a prosperous and successful financial year! As always, if you need some help or guidance, don’t hesitate to call me on (03) 9554-3128.
Next week we will move away from the budget process and onto some new topics to provide a sound foundation for business success.
Ross – Virtual Part-Time CFO
