Ask the Expert

Developing a Budget for your Department

by Quill Sr. Manager Financial Analyst Mark Schacher

Does the word “budget” strike fear in you? It is nothing more than an exercise in organization and planning. If you follow a few simple steps, you can have a great budget drawn up in no time!

1)       Identify your sources of income (revenue).  What are you selling?  Services? Products? This is your revenue stream. Determine any new anticipated sources of revenue and add these to your current baseline amount.

2)       Identify how you're spending money now to sell your products (expenses).

a.       Based on your business, what are the costs associated with your sales? Subtract these from your revenues. Some typical questions to ask yourself: How much does the product we’re selling cost us? How much does it cost to store and deliver the product to the customer? Do we have after-sales support such as customer service? What is the cost of that?

b.       Identify your employees and their total expenses. List your employees and their current wage amount. Will they get a merit increase? How much do their benefits cost you? Do they get bonuses? Do they travel? How much do you purchase when your employees need office products? Subtract these amounts from the total revenue above.

c.       Marketing/Sales: How much does it cost to tell people about your products/services? Advertising/catalogs/salespeople/etc….  Subtract from total revenue.

d.       Facilities: How much does it cost to rent your space? Telephone?  Furnishings? Insurance? Again, subtract from total revenue.

3)       Now you have a basic budget for your inflows (revenue) and your outflows (expenses). As long as your revenues are greater than your expenses, you have net income and you’re doing pretty well. If your outflows are larger than your inflows, you have a net deficit. Start back at Step 1 and identify ways to increase your sources of income and/or reduce your expenses.

Remember, creating a budget is a waste of time if you don’t take the time every month to compare what actually happened to what you planned. Track your spending to make sure you stay within your established budget guidelines.

Do you have any tips to add? If so, let us know!