Companies need to plan on many levels (short, medium and long-term) to reach their goals and be successful in their chosen market. A plan should be formulated for each direction of the business, including:
- setting achievable targets
- how to make continuous improvements
- adapt procedures to market conditions
- anticipate and solve problems
- establish or change focus areas and identify ways of doing this
- analyze the overall condition of the business and assess how it’s performing
What is budgeting?
Budgeting is an annual plan of expenditures of a company, which considers and combines the objectives of all company departments to make sure that all the envisioned goals can be paid for and are achievable with the available resources. It considers the calculative predictions of money flow (in and out) to know when and how planned activities will be financed. It answers the question, "what is the budget?" at the highest levels in a company. It considers the inner (revenues) and outer (loans) financing sources to make sure that the company's financial goals can be met by the end of the year.
The correct budget for the year includes sales, purchases, expansion plans, mergers or acquisitions, and the day-to-day operating of all departments. A budget needs to consider money flow, depletion of resources, market position, product quality, opportunities, steps to cover financial shortages, predictions of market changes, financial resources to cover the unexpected losses, and the incomes, which will be acceptable to stakeholders.
Marketing questions to ask
The marketing budget is a part of a company’s overall annual budget. When composing the marketing budget, there are some important questions to ask yourself, employees, and stakeholders, such as:
- What’s the level of your marketing at the present time? If you don’t have some parts of your marketing strategy and image formulated yet, this will consume a portion of your budget.
- How long have you been in your business? For new companies (less than 5 years in the market) a larger budget is required to cover development targets. While for established companies, a lesser percentage of the budget is required.
- What are the company’s expansion aims? Expansion plans require more money than just a regular “reminding customers of your existence” marketing strategy.
- How do you plan to increase your sales, and by what means? If growth isn’t through the improvement of product/service quality, but by shouting louder about yourself via more communications channels, then this will incur additional expense.
- How competitive is the market at present? In a highly competitive market, usually, larger marketing budgets are necessary.
Although these are simple marketing questions to ask, and they might be rough estimations, they are important points to start with when you’re budgeting for the coming year.
A cycle of creating a budget for business activity
Business planning is a cyclic undertaking. It can be made annually, semiannually, or for a longer/shorter period, depending on the normal business cycle of your enterprise and industry. A typical cycle looks like this:
- Review your current performance based on the last planning cycle.
- Estimate targets, opportunities, and threats.
- Review your successes and failures in the previous cycle and plan ways to overcome them in future.
- Look at your long-term objectives (5 or 10 years) to roughly define targets for coming cycles.
- Identify the resources needed to deliver your goals.
- Determine the changes in the processes and outcomes of your company.
- Define the desired numbers to be reached by the end of the year.
- Draw up a detailed plan and raise it for discussion.
- Finalize the plan based on discussions and action them.
- Review regularly to ensure everything is going as planned.
- Start again from step one.
This sequence is applicable to every department involved in company development. Budgets of auxiliary departments servicing the main departments will be dependent on the main departments and, as a result be simpler.
Periodic planning is essential for every company. Even if a company doesn’t have standardized planning as a separate procedure involving all departments, they must budget in one way or another to remain competitive in the market. If your company has been operating for long enough, you’ll be aware of the intricacies of planning. But if you are new to the market, the information provided in this article should be a useful tool for you