A Complete Guide to Budgeting for Managers (With Tips)
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Every successful business tracks its revenue and expenses, therefore, as a new manager, you may be responsible for managing your department's budget. Besides knowing how to navigate critical processes like decision making, change management and team management, managers also require an intuitive understanding of finance to improve their team's performance and create value within the company. One of the fundamental finance skills required for managers is budgeting, which is the process of developing and overseeing a financial plan that measures income and expenses over a pre-defined period.
In this article, we discuss budgeting for managers, explain why budgeting is essential and share some tips for managers to make budgeting straightforward and more manageable.
What is budgeting for managers?
Budgeting for managers is the process of handling and tracking income and expenses. Often, organisations allot fixed budgets for individual departments and an overall company budget. Department managers usually oversee their department's budget. If you're a new manager, it's important to have various resources and skills to become adept at budgeting. Budgets generally have four essential aspects:
Revenue: This is the income derived from sales, investments and other sources. The manager makes a record of all their streams of income in their budget.
Capital expenses: Capital expenses include costs such as adding a new building or getting a patent approved. Businesses consider these expenses as investments that help run and grow an organisation.
Operating expenses: Operating expenses are the costs associated with running a particular department or business. These expenses can include rent, utility charges and the cost of machinery upkeep.
Employee expenses: Employee expenses are the costs associated with hiring and retaining professionals within the company. This can include their salary, insurance and healthcare benefits.
Why is budgeting important for managers?
Budgets are a critical element of financial management and massive contributors to a firm's overall success. Setting a budget ensures the team has the required resources to achieve its goals. Here are some important reasons budgeting is essential for managers:
helps communicate expectations and targets to internal stakeholders, such as executives, department managers and others who monitor the company's performance
helps mobilise departments and teams on the company's goals and objectives
enables managers to assess the group and individual performance
allows the manager to allocate resources effectively so team members can use them effectively to meet the goals
provides insight into the business's financial health
enables the manager to compare the forecasted budget with the actual results
indicates the areas, units and departments that are profitable or meet their applicable goals
shows the components and areas that are unprofitable or don't reach their expected goals
helps set pre-defined benchmarks that managers can use for evaluating the company and its performance
helps you to make informed decisions about any facet of your team or department when you know the exact amount of money you've allocated for them
Important skills for managers to manage a budget
While a manager employs several skills to succeed in their role , they also require some specific skills that make budgeting more manageable and easier to understand. Here's a list of important skills to help you manage a budget:
Planning and preparing the budget for the upcoming year is an important skill for managers. It's important to consider several factors, such as business objectives and your department's goals, when preparing your annual budget. Start by identifying the overhead costs that the department pays to function efficiently. Then, identify the capital investments that may improve the department. Preparing a detailed and functional budget can help you manage it efficiently.
A manager is skilled in analysing the financial health of their specific department. Profits and losses can affect the annual budget. An excellent manager can review financial statements and make educated decisions regarding their budget based on the information they gain from existing data and research.
Financial forecasting is the process of identifying how a department or business performs at a fixed time in the future. Therefore, it's important to consider financial forecasts when budgeting. Excellent managers can use financial forecasting to determine if they can invest money and where they can expect additional costs. Essentially, financial forecasting helps them maintain a balanced budget for the year.
Budgeting tips for managers
Here are some budgeting tips you can use to become a better manager and advance your career:
Study the organisation's budgeting process
Understand your organisation's budgeting timelines, practices and procedures before forming your budget. Sometimes your numbers may depend on the financial targets pre-defined by your senior managers and other department heads. Knowing the due date of specific deliverables can help you manage your time and connect with stakeholders effectively.
Leverage financial data
Along with understanding the organisation's process, you can also leverage existing financial data in your decision-making process. For example, you can analyse financial statements, such as the income statement, balance sheet and cash flow statement, to gain insight into your organisation's financial health and performance. Using historical data for reference can also help you allocate resources effectively.
Work toward the goals
Understanding the goals of the organisation is essential for successful budgeting. It can help you know how your team's responsibilities fit into the company's overall goals and objectives. Identifying these specific requirements can help you break down your team's goals into specific deliverables so you can account for them within your budget. Make sure to include all the resources your team members require to create the desired outcome and complete the project.
By creating a budget based on the organisation's objectives, you can create a roadmap for assessing performance as the fiscal year progresses. Make sure to keep track of all your expenses so you can compare them with your projected costs. It's also a useful tool that can help ensure that your team's timelines are in sync with the company's project plans.
If a particular task item is at risk of incurring additional costs or not being completed, be flexible and prepare to make changes. In addition, consider strategies to realign your team and improve performance. Since unexpected circumstances can arise at any time, make sure to keep this kind of flexibility throughout the budget management process.
Communicate progress and track results
Maintain clear and consistent communication when managing a budget. Regularly meet with your key stakeholders to report your team's results and contributions. You can also use data visualisation techniques to make it easier to communicate the budgeting updates with your stakeholders. Make sure to highlight any accomplishments and areas of improvement that can impact your project.
Be transparent and involve your team
Communicate the details of the budget with your team members. Involving your team in the budgeting process creates an understanding of shared ownership and encourages team members to identify creative ways to manage expenses. Praise them for the positive impact of their work and share guidance on how to do things better. These kinds of team meetings can make them feel more engaged and motivated.
Improve your financial skills and knowledge
Engage in continuous education and improve your financial skills and knowledge. Consider enrolling in relevant workshops or online finance courses. You can also consider pursuing a Master's in Business Administration (MBA) to broaden your understanding of important financial concepts and terms. In addition, further education can help you identify ways to add value when preparing your budget so you can make more informed business decisions and become an effective manager.
Use appropriate tools for budgeting
One of the easiest and most accessible tools for creating a budget is Microsoft Excel. You can set up a tracking spreadsheet that can help you track each account by month and other variables. In addition, you can speak with senior managers or finance professionals within the organisation to learn about any specific tools or software you can employ for budgeting purposes. Spend time training yourself or asking finance and accounting colleagues to help you understand how to use advanced budgeting tools.
Please note that none of the companies mentioned in this article are affiliated with Indeed.
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