Finance budgeting
Finance involves much more than just columns of figures and spreadsheets .It is about understanding a companys value chain, how the firm makes and spends its money, delivers value to customers and shareholders, and measures its ability to carry out its competitive strategy. When HR and other non-financial managers and employees grasp how their companys value chain works, they can better see how decisions they make and actions they take every day can save the firm money, boost revenues, and otherwise improve the bottom line.
Financial savvy has other benefits as well. It enables managers and employees to comprehend why their company sometimes has to make difficult and painful decisions, such as initiating layoffs or other cost-cutting measures. When people are familiar with and understand the hard-core numbers that express the businesss performance, they realize that management is not just cutting for the sake of cutting; it is taking needed steps to ensure the firms survival. Many people develop a whole new appreciation for management once they have deepened their financial knowledge.
Managers and employees who have mastered finance basics are also better able to recognize when something questionable is going on in their organization.
You can enhance and demonstrate your financial know-how by taking action on the job considering these guidelines:
Understand key external business trends. You must be aware of what is happening in your companys industry and markets, whether supply chains, distribution channels, and other major elements of your firms value chain undergoing major shifts .This aspect has to be discussed with the suppliers, customers, line managers, and executives about what they see happening in the business world and inquire what they consider the most important implications of these changes.
Connect with your company. Spend time with line managers and employees who work in the functions and departments that make up your firms internal end-to-end process for creating and delivering customer value. Show interest, ask questions, and find out what keeps these individuals awake at night. Do the same with key suppliers and customers to enrich your knowledge of your firms business even further.
Once you have strengthened your understanding of finance, you will find a wealth of opportunities to apply your knowledge on the job. By enhancing your knowledge of finance, you can better isolate the impact of HR policies and programs on your companys performance and translate that impact into monetary terms.
The basics of budgeting are for people who want better business planning skills. Among others, it is intended for corporate managers, small-business owners, students, new analysis, and business veterans who want to sharpen planning skills.
Most people are responsible for small parts of a big budget, or else they are responsible for managing a planning process for an entire company .A plan is a projection of future activity .A budget is a plan in dollars and cents .Although planning takes efforts, companies consider it a good investment. Here is why:
1. CONTROL: Plans are the foundation of business control. The only alternative is chaos.
2. ALLOCATION OF RESOURCES: Businesses prosper when they use assets in the most profitable way. Good plans change the way businesses use assets, which increases profits.
3. OUTSIDE RESPONSIBIliTIES: Investors, banks, shareholders and boards demand good plans. No one wants to invest in a firm that has no Âfirm idea where it is going.
4. EFFICIENCY: Planning saves time, efforts, and money. It lets managers make mistakes on paper. It creates an inventory of decisions made, issues discussed, and controversies settled. Organizations that plan are proactive, focused, and goal-oriented. They fight fewer Âfires and spend less time reacting to unpleasant surprises.
Having completed the preliminary budget activities, and having prepared forecasts for the key elements of the budget, the next step is the actual preparation of the budget. The organizational budget consists of a compilation of the operating and capital budgets for the various departments. Based on the total requirements for each department, cash flow projections can also be made.
Each department must compile its budget based on the specific costs that it expects to encounter and, if it is a revenue center, the revenues that it projects as well. Budgets should be as detailed as possible, to ensure that all relevant items have been included. The budgeting task sometimes seems very complicated because of the specific forms that any given organization requires to be completed. However, the essential process is not complicated. Each organization strives to get an itemization of the various costs that it will encounter for the coming year, land the associated revenues.
The cash budget is a plan for expected cash receipts and payments .For organizations using an accrual basis of accounting, the cash budget provides vital information. The operating budget focuses on revenues and expenses, regardless of when revenue is collected in cash or expenses are paid. However, organizations cannot afford to run out of cash, even if they are making profits. The cash budget provides the information needed to know if there will be adequate cash on hand at all times. The cash budget allows the organization either to arrange for sources of cash to alleviate an expected shortage or to change the organizations planned revenues and expenses to avoid the shortage.
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