Detailed Outline of Projected Costs

This direction is meant for all the departments in the company and is aimed at addressing our annual budget for the next financial year.  The purpose of cost projection is to provide a financial tool for decision making in order to enable actual performance of a business (Harvard Business School, 2009). This cost projection should be a reflection of the overall focus on upholding transparency throughout the company. Remember the company’s values regarding budget which promote increased engagement, accountability and should represent our aimed path of success. The budget should therefore provide information that will show relevance to the agreed expenditures and eliminate any cost that will add unnecessary financial burden to this company and show a prioritisation for the projects that have been approved by the management. I would like to emphasize on the need for enough cooperation among all the department in the preparation of the budget so as to minimize any errors or omissions which may lead to future disruption in the operations of the company.

Every department should forecast all their major revenues and expenditures in order to give the accounting department ample information and time to prepare an overall comprehensive budget. The departments are required to prepare annual budgets that will factor in the allowance for monthly adjustment so that they become the main vehicle to plan and monitor their activities.  The departmental budget should show details from the previous year’s projections, actual records for the current year and provide reasons for any surplus or shortfall so far. They should also include the goal for having the particular size of a budget with clear explanation of the metrics for departments operation. The information should be provided in form of raw data in a spread sheet and a well laid out visual presentation by use of power point. The items to be included in the budget line should be aligned with the items for accounting lines, and every staff involved should ensure that the budget will match the structure of the company’s accounting system so as to ensure effectiveness in the comparison of the actuals and the budget by the management. Any mismatch between the accounting items and the budget items means that we create additional work for the management and risk many inconsistencies and this may undermine the purpose of the budget. The departmental budget should include the projected income cash flows and the expenditures that are going to be accrued. The cash flow projections should show any resulting shortfall or surplus so that we can know the expected profitability of the company. It will even be very important if each department shows where the funds are expected to be used.

Incomes

The departments should include every income expected from the services offered to our clients and this where we need a lot of cooperation among the staff since this is a very important aspect of the budget and yet very difficult to project. A very important factor to consider is the seasons when our services are in low or high demand. Unrealistic forecasting at this point may lead the company to plan on an income that will not be realised finally. It is important to separate income expected in form of cash and debtors. Any expected investment income whether from loans or investment income should also be included in the projection. The income will be used as a basis of allocating the expected funds in all the departments in the company so it is very crucial to avoid overestimation or underestimation. I want to emphasize on the importance of factoring in the tax obligation on these incomes so as to ensure that the company is fully compliant so remember to include all the VAT requirements.

Costs

The budget should include all the fixed costs and variable cost incurred by departments. Fixed costs are constant price charged monthly so you must carefully review total amount that of the monthly fixed bills, from the records. The variable cost should include all the cost the department expects to incur in the purchase of stocks and materials, or services to be outsourced for the purpose of smooth operation of the company. Take into account that there is a possibility of scaling up or down theses cost depending on the changes that may alter the state of the company’s operations. Such changes may require extra purchase of materials especially in the case of repairs needed, or the extension of services as required by our clients. Thus make sure to include all the expected major costs like salaries and wages, advertising, transportation, printing and all costs relating to marketing. However, full details should be provided for any extraordinary cost that will be included in the projection. Similarly, any amount of cost that is large should have a full explanation for the intended use, and if the cost involve any kind of a project it should be indicated clearly the benefits arising from it. The department managers should aim at keeping the cost as low as possible where necessary but this does not mean that necessary cost should be left out.

The department managers should factor in any one –time purchase include the expected expenditures like business retreat or seminar and those that are likely to come up unexpectedly like replacement of office assets. This will serve to protect the company from any financial burden that may cripple the laid down plans. The account department is expected to enter amount of rent for three months in advance, business rates amount on the in the months they are expected to be paid and consider the annual increment on the wages and salaries for the employees. The amount to be allocated for marketing department to cater for advertising, marketing, promotion and PR should correspond to the approved marketing plan for next year. These cost should not be underestimated as there is always a direct relationship between the product or services sold and this item. The bank charges and interest on the any loan facility or funds.

All the departments should submit their projected budgets to the account department by the end of June 2016 in order to prepare a comprehensive budget that will show the projected cost for the entire company next year. The department will the present an annual budget after summarizing the departmental monthly budgets so as to provide a general view of the expected costs against the projected income. This annual budget should then be documented with various tasks and deadlines indicated very clearly. Finally the company’s policies on budget preparation should be adhere to and the departmental cost estimates must be approved by the departmental managers.

 

 

Reference

Harvard Business School. (2009). preparing a budget: Expert solutions to everyday challenges. 8-15