Before we even think of answering the question making our topic for discussion today it is very important that we start by defining the term budget. Most people use this term but do not really have a clear understanding of what it means. A budget is an estimate of income and expenditure of an entity over a given period of time prepared through four stages of the Budget Process. Luckily this article covers Key Four Stages Of The Budget Process, which are budget preparation, budget authorization, budget execution and accountability which USA, Canada and UK have adopted as budget making process guide, since the 1960’s as part of the 4 steps of budgeting process.
This gives a guideline of how the entity’s resources will be distributed in order to achieve organizational goals without going off budget. In short a budget serves as a guide of how much you need to spend for what reason. Usually, budgets are designed according to the available resources.
We hear a lot about government budgets but very few know the process by which this budget matures to a stage where it can be dished out to the public. The process we speak of is a four stages of the Budget process which not only works for governments but also applies to small businesses that use budgets as the basis of their operations.
No stage is to be overlooked and a systematic way of carrying them out one by one needs to be formulated taking into consideration your business’ expenses and whether or not they have a positive effect on your profitability.
The Four Stages Of The Budget Process
4 steps of budgeting process includes budget preparation, budget authorization, budget execution and accountability: Let us take a look at the four stages of the budget process/cycle in detail as explained below!
- Preparation and Submission
Structure begins with thought and a budget is in itself a structure that needs to be created. From this standpoint, the thought process precedes the the creation of a budget and you need to consider factors like how much income is needed and, if the available resources permit, what new initiatives can be included.
Lets take for instance a small business owner whose creations and growth/development plans for the company determine what sails through the budget on these four stages of the budget process.
In the case of bigger corporations or even government, budgets are prepared by finance units in their jurisdiction and then submitted to the powers that be. This process is what then leads us to the next stage of the budget process as everything is now in their hands.
The atmosphere at this stage in the political sphere is quite different from that of the corporate world. In the latter, the company owner can simply stamp his signature in approval or not out of his discretion and maybe after a few consultations. Whereas in political circles, yes or no are not enough. Instead debates around the budget are held before approval.
Because of political differences amongst the leaders, the political process can negatively impact issues of priority and if businesses with larger boards fall victim to this bug, bankruptcy is imminent on 4 steps of budgeting process.
A piece of advice to small business owners, like myself, who handle all four stages of the budget cycle themselves; it is important that your accountant (if you have one) or trusted colleague goes through your budget before you stamp it.
Of course, when approved, a budget has to be implemented. That is what is meant by the term ‘execution.’ Governments tend to focus more on reducing spending and they put tight bottlenecks around funds. This doesn’t havs to be the case in your business. You just have to device means of regulating expenditure and managing lower than expected revenue.
In my research I came across this quote and I felt it is in deed profound to share Four stages of the budget process; “Most of the time money comes in and goes out in accordance with the budget. A good budget isn’t a limitation on what your company can spend. It’s a financial embodiment of your company’s strategy and tactics for the year.”
- Evaluation and Audit.
This is one of the most important stages of the budget cycle. Evaluation is an important aspect in all aspects of business. It is not limited to budgets or finance. Some call this a progress check. Nomatter how good your budget is in concept, you have to frequently evaluate it and sometime do revision. Businesses has external stakeholders that can have influence in your business such that changes are inevitable. Customers and partner companies are some of these stakeholders.
Sometimes evaluation then reveals the flaws of some ideas you thought were so perfect. It also feeds into audits which trace how funds have been used, dollar for dollar.
According to an observation, “The government audits and evaluates spending to ensure that money is being spent lawfully. But ongoing evaluation of your business’ budget requires a wider lens of these Four stages of the budget process. You’ll want to keep an eye on how effectively money is being spent. But what really matters in business is whether you’re operating at a profit after mastering what are the four stages of the budget process.”
Now that we understand what the four stages of the budget process which we now know as the budget cycle again, my hope is we not only use the advices you and I obtained as we journeyed through this article as we explain four stages of the Budget process. I prefer the word ‘cycle’ to ‘process’ more.
The former clearly shows you that this is not a once and for all process. In fact, the budget document is a living one from which amendments, additions and subtractions draw hybrids of budgets. It would be very useful if you use diagrams and graphs clearly show four stages of the Budget process. These are really usefull as they show you exactly how your income, expenditure and revenue are performing and what are the four stages of the budget process”. Learn and unlearn new things each time you do a budget for your business.
We also need to pay attention to the budget protocols by governments in order for us to understand our own businesses and the capacities they can hold under our respective governments. Economies certainly play a big role in learning 4 steps of budgeting process and private businesses and automatically government budgets have a contribution among the determinants of your own business’ budget by fully understanding What Are The Four Stages Of The Budget Process, above all What are the 4 phases of budgeting?.
Small business owners need a plan around auditing. This is an important, yet highly specialised facet of accountability in business. It is wise to invest in a good Accountant or accounting consultant who can assist you with your budget processes.