Timing of the Master Budget Process
Completing a master budget requires you make smaller budgets from several key aspects or departments of your business. The operating budget projects income and expenses based on projected sales revenue. The sales budget projects revenues from selling goods or services. A production budget calculates how many items you expect to produce and at what cost. Your labour budget estimates your company’s costs of paying employees throughout the year. A materials budget takes into account purchasing materials to create your products. An administrative budget projects the costs incurred by activities that don’t directly deal with the selling or production of your goods or services, such as accounting and hiring of new staff. Develop a cash budget for cash you have on hand for purchasing small items or for emergencies. Each departmental budget should have specific breakdowns of how they plan to operate in the coming year.
A financial budget outlines how much money you have at the beginning the of the year versus the end. It gives you an idea of how much you can spend on a particular department and when, because you don’t have the entire budget for a year once the new fiscal year starts. Elements of a financial budget include your cash on hand, loan payments you make, monthly expenses and monthly income.
You must finish both sets of budgets before beginning work on the master budget. The smaller components of your master budget should clearly outline information found on income statements, statements of cash flows and your overall balance sheet. The master budget coincides with your company’s fiscal year, but you can break it into smaller time periods, such as weeks, months and quarters (three-month periods), so you can see the progress your company makes.