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The different methods of business budget planning include creating spending amounts based on calendar divisions, departmental estimations, unit production costs or profit percentages. The method selected by a certain company will depend on its business plan and operational objectives. Some unique budget approaches may combine a variety of planning methods.
Calendar-based budget planning methods often start with an annual expenditure amount in line with previous years. The yearly budget amount is then broken down into monthly and weekly expense allotments. To maintain strategic planning in utilizing the budget, control in this type of method may be given to senior accounting personnel who are responsible for keeping track of spending each week, month and year. In departmental types of business budget planning, department managers typically have more responsibility for spending control.
Budget meetings and department spending histories often help top management decide on budget amounts to allot to the different departments. Managers in each department must approve spending and keep track of how much is being spent from their allotted budget amount. This type of business budget planning usually requires extensive record keeping by each department manager. Follow through budgetary meetings may be held during the year to make sure all managers are on track with the total budget.
Company budget planning centered around production costs and operating expenses offer a unit approach. This method of budget planning considers each expense, such as in every cost involved to produce one unit of product. It considers what the exact cost is needed to sell one piece of the company's product or service. The unit budgeting method is especially common in businesses that may experience variable profits each year, such as agriculture-related companies.
Some firms choose to base budget planning on a percentage of profits or sales. The basic concept of this type of business budget planning method is that expenses will be reduced if profits decrease. When profits increase, the budget for expenses follows suit. Companies that choose to use the percentage of profits budgeting method often first research the percentage rates used by other businesses in the same industry.
When using any type of budget planning method, a business will have to take all of its costs and expenses into consideration. How detailed and exact these estimations need to be vary depending on the business budget planning method chosen. Salaries, advertising, equipment, building, production and operation costs all must be factored into the planning strategy for business budgeting.
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