By Héctor Galicia | Tax ID Mexico
Budgeting is a key tool in a company's financial planning. It's not just about projecting income and expenses, but also about establishing a structured model that serves as a guide for decision-making, resource allocation, and financial performance evaluation.
1. What is a business budget?
It's a quantitative instrument It reflects, in financial terms, a company's action plan for a specific period (monthly, quarterly, or annual). Its objective is to align resources with the organizational strategy, anticipating financing needs, controlling expenses, and establishing profitability goals.
2. Types of budgets
- Operating budget: Includes income and expenses derived from daily operations. Consider sales, cost of sales, operating expenses, etc.
- Investment budget: Related to fixed asset acquisitions, expansion projects, technology, etc.
- Financial budget: Cash flow projections, projected financial statements, capital needs.
- Master Budget: Integration of all the above. It is the governing document of the financial plan.
3. Technical process for preparing a budget
a) Historical analysis and diagnosis
- Review of financial information from previous years.
- Identification of trends, seasonality and relevant deviations.
- Evaluation of key indicators: gross margins, EBITDA, liquidity ratio, collection and payment days, among others.
b) Definition of assumptions
Every budget starts from financial and operating assumptionsSome examples:
- Expected sales growth.
- Projected inflation.
- Exchange rate.
- Prices of key inputs.
- Hiring or investment policies.
c) Preparation by cost centers
- Budget by areas (sales, production, administration, etc.).
- Assign responsibilities by budget item.
- Avoid duplications and omissions.
d) Consolidation and reconciliation
- Integration of the general budget.
- Reconciliation with financial policies (spending limits, minimum margins).
- Validation with the general management or board.
e) Approval and communication
- Presentation of the budget to the executive committee or board.
- Formal approval and internal dissemination.
f) Implementation and control
- Uploading the budget into accounting or ERP systems.
- Establishment of financial and non-financial KPIs.
- Monthly comparison between budget and actual (variance analysis).
4. Good budgeting practices
- Conservative approach to income, realistic approach to expenses.
- Include alternative scenarios (optimistic, base, pessimistic).
- Use tools such as advanced Excel, Power BI or integrated ERPs (SAP, Odoo, Contpaqi).
- Update the budget quarterly or in response to relevant events.
- Ensure the participation of the financial area from the beginning of the process.
5. Common mistakes
- Projecting without considering historical information or market trends.
- Do not include documented assumptions.
- Underestimating recurring operating expenses.
- Lack of monthly follow-up.
- Isolated development without the participation of those responsible for each area.
6. Conclusion
The budget is a mechanism of control, planning and performance evaluation, and should be treated as a technical and strategic process, not a mere formality. Its proper development and implementation allows for anticipating risks, optimizing resources, and making informed decisions.
In Tax ID Mexico We assist companies in the preparation of comprehensive budgets, from financial diagnosis to the implementation of control tools, also offering the service of CFO as a Service for those seeking financial direction without incorporating a fixed structure.
0 comentarios