BUDGET MANAGEMENT SYSTEM IN KENYA
Most individuals and businesses have funds and resources that they would like use, spend or save, for a variety of reasons. Everybody has the freedom to do so. However, most of us end up wasting funds unknowingly and later on end up with little to no money. This mostly happens because we spent more money than they could make and probably did not keep track of the spending. Therefore, some people decided to come up with a plan that would help them know how they are going to spend their money. This spending plan is what is
known as a budget.
Budgeting is the process of creating a plan to spend your money. Most people do it manually using a bit of math here and there. It works only if one did it correctly and followed strictly. However, trying to account for large sums of money needed and resources available manually became tedious and time consuming. A lot of people would encounter budgeting errors due to miscalculation. This is where a Budget Management System comes in.
The Budget Management system helps you to plan for your expenses, allocate funds, and budget for other expenditures, then compare them later to see which exceeded and which matched well for the planning of the next budget. This system is very common and we use in various sectors in Kenya, from SMEs, large corporations and even all the way to the National government. Budgeting involves four major processes, as shown below.
Major Processes involved in Budgeting
- Budget Preparation
- Budget Authorization
- Budget Execution
- Budget Accountability
The processes involved in budgeting tend to overlap each other during implementation process.
TYPES OF BUDGETING
Basic Budget – its main purpose is to help map out simple expenses and income. A basic budget can be created in a spreadsheet or using a template and it is great and useful for home and business planning. They are usually easy to use and flexible, as most people use it with ease. It is very useful when you need to map out simple accounting information like personal or business expenses.
Master budget – The purpose of the master budget is to include smaller operation budgets and provide a larger picture of individual income and expenses. It gives a generalized picture of expenses as a whole. A business can utilize a master budget to plan for general expenses and identify expenses at a glance.
Short-term budget – this type of a budget aids enterprises or individuals plan for short term expenses and manage funds in a shorter time span (anywhere from a week to a few months). It provides a more focused look into short-term expenses, income sources and budgeting goals. They are great for clearing short-term debt too.
Fixed Budget – This type of budget controls when income and expenses aren’t expected to change in the short-run. It is very useful in providing a simple picture of fixed income and expenses. It can be used for everyday income and expense tracking especially when you are not expecting any change in either.
Flexible Budget -for planning different levels of activity in incomes or expenses in the short-term or long-term. It offers more flexibility to the budgeting process, planning for varying activity levels in the company’s picture.
It is generally used when one is expecting different volumes for incomes and expenses.
Labour budget – tracking the cost of labour in relation to revenue. It is part of the master budget that focuses only on labour for a more specific view of an individual expense. It is therefore used to track general labour costs or plan for upcoming reductions or increases in labour needs.
Cash Budget – this type of budget is used to plan for cash flow (inflow and outflow) for a specific period of time, usually in the short term. It focuses mainly on cash inflows and outflows for a more specific financial picture. Recommended for use when you are expecting a larger volume in cash flow.
Operational Budget – also known as a functional budget. It applies to one specific operation of a business is part of the master budget. The advantage is that it only applies to a specific department, operation or function of a business, instead of the business as a whole.
It is considered only a good option for when you are overhauling a specific department or operation of a business.
Performance budget – it is designed to analyze the performance or aspect of a business and determine whether the cost is worth the output and result. It focuses on a specific aspect of a business and helps determine if the input is worth the Return of Investments (ROI).
Can be used to identify costly methods of production and determine if certain functions and operations are creating a ROI.
Static budget – Used to account for astatic expenses that won’t change. Allow for a focused look at fixed expenses that remain constant despite fluctuations in sales volume and revenue.
Function of a Budget Management System for Businesses.
The Budget management System helps you set up and manage budgets for your business. It becomes very easy to understand how it works once you understand the kind of budget that will help you achieve the goals that you have set.
Furthermore, it also helps you view budgets and even generate a proper budgeting report. With such reports, you can also track budget performance against your actuals using the Profit & Loss Report feature.
Finally, a proper budgeting and accounting system can help you control and reconcile money between your business bank accounts.
At Robisearch Ltd, this feature is integrated in most of our systems as a module. It generally even makes work easier for those in charge of accounting and finance.
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