Corporate budgeting is a business process to identify how much
revenue can the company potentially make in the next one to five
years and how much money does the company need to spend to earn
that revenue. To a layman, it is simply a case of identifying how
much more you want to earn for next year and multiply all the numbers
by a certain percentage. If that is how you are doing your budget,
then I would agree with you that it is a total waste of time. Don't
do it at all. Budgeting is to identify the line of businesses/products
that will bring you a stable stream of income as well as those with
high growth potential and the cost associated with these businesses/products.
Budgeting is not only a process to establish a plan on how you are
going to achieve your profit for the next one year, but it is also a
time for you to review how you have done in the past one year.
For example, a review of our business showed that almost half of our
revenue for last year came from our Advanced Excel Training Course -
"Unleashing the Potential of Excel". This was unexpected as our initial
intention is to use the course as an advertising channel to promote
our consultancy services. The review identifies an additional line of
business for the company and we decided to put in more resources to
take advantage of this new income stream. At the same time, we have
to set aside some money for expenses for the launch of our new solution
which cut short their budgeting time by half while budget planners can
consolidate the numbers at a click of a button, without moving away
from Excel. The process triggers a preliminary review on the price
we plan to set for the solution
and how many customers we intend to convert in the first
year. Doing the exercise is important as we can project how much revenue
this solution can bring us this year and how it would fare in the next 5 years.
With the plan in place, we will be able to isolate the impact and understand
how the existing business is faring and how this new line of business will
add to the bottom line. Without the process, we will be running in the dark
and this may slow down the growth of this revenue stream.
The above exercise is very important to the management as they will
not have the time to follow up with the activities. The plan will gave
them the opportunity to delegate the project to someone suitable and
this person would be able to operate with more autonomy with a given
plan. And should the project deviate from the plan, the person and/or
the management can then schedule an adhoc review on this line of business,
such as, putting in more resources if the growth of this revenue stream
exceeds the expected growth.