A budget is telling your money where to go, instead of wondering where it went ” That’s the way Dave Ramsey, a financial advisor from the United States, talks about budgeting or budgeting.
The term budget, budgeting, budgeting, or budgeting you often encounter when you want to buy or need something to meet your needs.
For example, in a month you get a salary of say Rp. 5,000,000, from that amount, how much money will you spend to fulfill your living needs?
Well, that’s when you are doing the budgeting process. To that end, Jurnal by Mekari will explain what a budget or budget is in full as your basic guide, especially in starting a business or activity.
What Is a Budget?
In general, the budget or budget is a process of estimating or calculating the assets or income owned by spending for future needs.
The basis of the estimates also varies, namely data, past events, future risks. The estimates are then analyzed and measured by your ability to meet the goals to be achieved.
In short, the budget is a process where you estimate how much money you have to spend based on your ability to spend it.
However, the budget is not only limited to personal finance but also business finance which is called the company budget.
The company’s budget itself is a package of plans arranged in accordance with the objectives to be achieved by the company in the coming period as measured by monetary units.
Budget or budget is also part of microeconomics which shows how an organization or company makes a trade-off that is putting down certain aspects and replacing other aspects to get the goals to be achieved by the organization or company.
Function and Purpose of the Budget
As explained above, the benefits and objectives of the budget are to give an idea to the company or organization of the bottom line or goals that will be achieved in a certain period.
Then, what are the other functions of budgeting or budgeting?
- As a form of bottom-up communication to high management or related parties in a project or work in a certain period. So that management knows what the expenditure priorities are.
- As a material assessment of the feasibility of a work or project to be carried out.
- As a material review of the planning of the financial organization or company to determine what resources are appropriate to use based on financial value.
- As a measurement, comparison, evaluation, control of the performance of activities or projects that have been done.
- Ensuring business goes according to plan and commitment. So that all expenditures are measurable.
- Measuring the remaining funds which can later be used for the next period.
- As a reference in making decisions in implementing implementation methods so that available resources can be maximized.
Types of Budget Based on Planning
To understand more clearly, especially in budget management, you need to understand the types of budget or budget.
One type of budgeting that you need to understand is based on planning. What are the types of budget or budget based on planning?
1. Incremental Budgeting
Budget or budgeting is the most basic and commonly used by companies. Typically, companies that use this budget tend to have routine work or projects and are usually used by government agencies.
Incremental budgeting itself is the current year’s budgeting adjusted to the previous year by adjusting or changing several allocations.
2. Activity Based-budgeting
Budgeting based on the activity or activity-based-budgeting is budgeting approach is top-down. That is the budgeting process is determined directly by the management.
Management will determine the amount of input needed to achieve the company’s targets. For example, with an input of Rp. 500,000,000, how much can be spent based on activities that intersect with the company’s goals.
3. Value Proposition Budgeting
This type of budget is prepared based on the value proposition that can be given by the work to be planned.
You could say this type of budgeting is a very strict budgeting process because it aims to avoid unnecessary expenses.
4. Zero Based-Budgeting
Having another name as a budget is not leftover. Where budgeting is carried out with the assumption that each allocation starts from zero.
This type of budgeting process does not consider activities in the previous period. Usually, this budget is bottom-up and top-down because the budgeting process requires discussion between employees and management.
This type of budgeting occurs when the company experiences financial restructuring due to the impact of economic changes or the company’s internal impact.
Types of Budgeting Based on Involvement
The budgeting process is also divided based on the involvement of management and employees. Where this involvement is divided into two types, namely bottom-up and top-down.
Bottom-up is a decision-making process based on discussion and input from employees. While top-down decision making is done by management then employees will adjust.
1. Imposed Budgeting
The process of budgeting approach is based on a top-down. Policies to determine the company’s achievements are decided and determined directly by top management.
2. Negotiated Budgeting
A combination of top-down and bottom-up methods where management and employees sit together to determine the goals and direction of the policy in achieving company achievements.
The negotiated budgeting process takes a long time so that the budget process is considered less effective in terms of time.
3. Participated Budgeting
The budget process is carried out based on input from employees or using a bottom-up approach. This budgeting is usually done if at certain posts experiencing obstacles or changes in strategy in achieving company goals.
Types of Budgeting Based on Activity
Budgeting or budgets are also divided based on activities, including:
1. Master Budget
As the name suggests, the master budget is the overall budget of an organization or company.
The master budget functions as a measurement or evaluation of overall business performance. Where will be seen whether the company is healthy or not in financial terms?
2. Operating Budget
The operating budget serves as a tool for forecasting and analyzing the income and operating expenses of an organization or company in a certain period.
Operating budget consists of direct labor budget, overhead cost budget, raw material cost budget, production budget, sales budget, inventory budget, and program budget.
3. Cash Flow Budget
A cash flow budget is useful for allocating or knowing how cash flow works in a certain period.
The cash flow budget is very dependent on company debts. I Cash flow budget also functions as a guideline for the company to make decisions for future steps.
For example, construction companies will usually use a cash flow budget to determine when they will start building before it is paid for by the project owner.
4. Financial Budget
Financial budgets are usually carried out by companies to manage assets, liabilities, and also the capital they have.
The financial budget includes profit and loss budget, balance sheet budget, capital change budget, and also budget change in financial position.
Tips on Setting A Budget
Jurnal by Mekari also has several tips that you can use to prepare a budget, especially for those of you who are going to start a business. Like what?
1. Set Goals to Be Achieved
Budgeting is actually a guide or a way to reach the goal. Without any purpose for what you are preparing a budget. On the contrary, goals without a budget plan are difficult to realize.
For example, for this period you need marketing tools to increase the scope of your brand. You can make an outline like this,
Objective: Increase brand awareness through marketing tools
- What tools will be used?
- How many effective tools are needed to achieve this goal?
- How long will the tool be used?
- How much does it cost if it is used within a certain period?
- Who are the customers for whom you want to build awareness?
The questions above must also be adjusted to the capabilities and availability of your resources. How much capital do you have to fulfill these activities?
The suitability of revenue or resources will also influence your decision in determining activities at the time of budgeting.
3. Pay Attention To Fixed Cost and Variable Cost
Paying attention to fixed costs and variable costs is useful so that you can resist issuing unnecessary things.
By knowing these two costs, you can determine budget priorities. Consider what is a fixed cost in your budget. Make these fixed costs your calculation priority.
4. Provide complete information
Good budgeting contains detailed and comprehensive information. For example item A, how much is it? When is the duration of use? Rent or buy? How much it costs? When will the item be used?
Complete information allows you to trade-off, or reduce costs that are unnecessary in the budget.
In addition, complete information in the budget can be a performance measurement tool for each fund allocation written.
5. Budget is Not Only a Plan but A Growth Plan
Creating a true budget is not just planning to abort budget allocations. But what about the budget, the planned achievements in the current period can exceed the specified target.
For example, your budgeting goals want to streamline brand coverage through Instagram Ads.
Your focus is not only on how to use Instagram Ads. But how to use Instagram Ads can lead to sales conversions or even greater.