As a novice manager, the journey of creating your first budget can be a daunting and nerve-wracking experience. The key to success is knowing where to start, understanding the starting point, and creating breakthrough habits.
But don’t be afraid. In this article, we’ll guide you through creating a budget, focusing on avoiding rookie mistakes, navigating the approval process, and effectively blocking and controlling your budget.
Rookie mistakes. creating the right foundation
Beginner mistakes in budgeting often stem from a lack of clear vision. To avoid this trap, communicate openly with your superiors to understand future directions for the department. Sometimes you may be directed to keep the new budget against the previous year’s expenses.
When starting your budget, referring to the previous year’s budget is a safe and valuable starting point. It provides insights into past spending and helps lay the foundation for a new budget. Remember that a budget is a living and breathing document that requires periodic review and adjustment.
Don’t hesitate to ask your colleagues for an opinion. Their insights can be invaluable. Communication with stakeholders will provide a sense of ownership of the budgeting process.
One common oversight is not to include new initiatives in your budget plan. As your managers introduce new programs or investments, it’s important to incorporate those changes into your budget. Equally important is removing outdated or one-off initiatives from previous budgets.
Understanding wage and contract changes is critical. In some sectors, such as sports, specific costs are predetermined by collective agreements, making up a significant part of the budget. Recognizing these fixed costs helps you accurately plan for the remaining flexible costs.
Creating an appropriate budget requires a thorough understanding of your business. Dive into past financial records, departmental expenses, and profit and loss statements from previous years. Understanding spending patterns and where money goes is vital to effective budgeting.
Communicating with the various stakeholders in your department is critical. Gather information about their plans, changes and needs. Creating an inclusive budget process may not include all recommendations, but it facilitates valuable input and strengthens the decision-making process.
The approval process. navigating your way to success
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Once you’ve created your budget, it’s time to navigate the approval process. Before you head out to show your boss your new budget, take a step back and make sure you’re not missing anything. Make sure your formulas cross-check your numbers.
Correct expense coding is critical to accurate financial tracking. Assign codes to invoices and categorize them within the budget to ensure appropriate allocation of costs to specific departments or categories. Make it a habit to use a budget every day to determine where to spend and maintain financial clarity.
Lock in and control the budget
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Once your budget is approved by the finance team, it becomes the final document, entering the “lock and monitor” phase. In dynamic environments such as the sports industry, urgent changes can occur; they may be a one-time expense or a large purchase that requires immediate budget adjustments. In such cases, you can change your financial situation by updating the quarterly forecast. The budget cannot be adjusted because it is locked.
Calendaring your budget helps manage cash flow. Now that you have a final budget, you can spread out the expenses as they occur over the course of 12 months. This approach provides better tracking and matches expenses to the correct quarters, providing a more transparent financial overview.
You are expected to dispute incorrectly coded expenses on your budget line item. Whenever this happens, a simple phone call to the records department usually solves the problem. That’s why budget-to-actual cost analysis is needed regularly.
Expense categories like travel and entertainment tend to fluctuate and be less controllable in budgeting due to unforeseen pricing and travel requirements. These challenges can test the accuracy of budget forecasts, but adaptability and vigilance are your allies.
Building trust, credibility and accountability
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An important lesson in budgeting is establishing trust, credibility, and accountability. When stakeholders know and trust the validity of your numbers, they tend to relax and believe in your executive presence.
Creating your first budget is a transformative journey that puts you in control of your department’s financial destiny. By avoiding rookie mistakes, mastering the approval process, and effectively closing and controlling your budget, you’re paving the way to success.
Budgeting is not a purely financial issue. It is a strategic tool that drives your organization to capture its current position and confidently predict the future. Embrace the process, learn from your experience, and let your budget become a beacon of financial prosperity and strategic mastery. Be the beacon on the hill that others look to as an example of excellence. You can do it.
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