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Every business owner knows that having a workable budget is key to the management of a successful business. But only a few actually manage businesses with workable budgets. The challenge is always the lack of the know-how in creating a workable budget that an average business man can easily implement. Average is used here to refer to a person who has no formal training in budget preparation.

A budget may be defined as a list or a financial statement of the total estimated revenues and the proposed expenditures of a business organisation in a given period of time, usually one year.

A workable budget is a budget that the items of revenue and expenditure are understandable and easy to implement as it relates to a particular type of business irrespective of capital involved.

WRONG ASSUMPTIONS ABOUT A WORKABLE BUDGET
These are the wrong assumptions people have held for a long time. They are:

1) A newly established micro and small businesses do not need workable budget

2) There is a high level of mathematical skill needed to handle workable budget.

3) It is not every business that have the discipline to handle workable budget.

4) It consumes time.
5) There is too much restrictions once a workable budget is created.

COMPONENT OF A WORKABLE BUDGET
There are three components to cresting a workable budget namely:

1) List of revenues

2) List of expenditures

3) Tracking expenditures

IMPORTANCE OF A WORKABLE BUDGET
1) A workable budget helps an organisation to translate its organisational objectives in a formal way into specific plans, tasks etc.
2) It shows where there is efficiency and inefficiency in the organisation.

3) It gives a clear picture of a business organisation which makes decision taking easier. Also, it is a useful tool for performance monitoring.
4) It motivates employees to participate in establishment of goals and plans.
5) It reduces the chances of fire-brigade approach in the running of the business.
6) It helps to achieve co-ordination between various departments and functions of the business organisation.

7) A workable budget helps in maximising savings and investments.
HOW TO CREATE A WORKABLE BUDGET

Creating a workable budget does not require certification from anybody before its creation. It involves complete understanding of how revenue is going to be made, expenditures involved and the tracking of the expenditures.
1) Establish realistic assumptions in estimating items of revenue and expenditures with their corresponding amounts.
2) Ask your employees for help. It is necessary because none of us is as smart as all of us.
3) Break the revenue and the expenditure into different heads. For example, revenue that comes once in a while (capital revenue) and others that are regular (recurrent revenue). Also, to expenditure into capital and recurrent expenditure.

4) Tabulate the items of the budget that is put it in a table like form, at least for 12 months.
A) Draw first column for revenue.
B) Draw second column for expenditure

C) Draw third column for actual expenditure.

D) Draw fourth column for differences/variance.
It is in the fourth column “Differences” that you record the differences between the budgeted and the actual expenditures. This could be positive when budgeted is more than the actual but negative when the actual is more than the budgeted.
In conclusion, a workable budget is fundamental to driving a successful business. You may want to consult an accountant in creating a workable budget or you do it yourself with some free budget worksheets and templates available online.

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Chukwuemeka Ayogu

Chukwuemeka Ayogu is the founder and Lead Consultant at Countsystem, a service provider in accounting sector in Nigeria, bsiness systems and controller services. He is an Accountant Partner of Accounteer, a cloud based accounting software. He is an experienced service provider with diverse working experiences. He has worked in customer service at Regional Business Unit Nigerian Breweries Plc, Customer Service Representative at Diamond Bank Plc, Principal Partner at Prudential Auditors & Consultants, State manager at Chijgz Resources International and more.

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Post Author: Chukwuemeka Ayogu

Chukwuemeka Ayogu is the founder and Lead Consultant at Countsystem, a service provider in accounting sector in Nigeria, bsiness systems and controller services. He is an Accountant Partner of Accounteer, a cloud based accounting software. He is an experienced service provider with diverse working experiences. He has worked in customer service at Regional Business Unit Nigerian Breweries Plc, Customer Service Representative at Diamond Bank Plc, Principal Partner at Prudential Auditors & Consultants, State manager at Chijgz Resources International and more.

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