There are many different ways to set budgets by a business. These methods may have to be negotiated as there is a natural tendency for managers to inflate budgets, so as to make it easier to be met.
Let’s take a look briefly at different ways how to set a simple business budget:
- Historical data. What has happened in the past years, previous experiences and knowledge of previous sales trends.
- The business aim and business objectives. The budgets will need to complement the business aim and its business objectives. If future expansion is planned, budgets will need to reflect this. The business objectives need to be expressed in terms of sales revenue, market share and ultimately profits.
- Available sources of finance. Any business budgets must be realistic as firms cannot spend more than they have the funds available.
- Negotiation. Budgets should be set though discussions leading to consensus among the workforce. A business manager will only feel responsible, if there is agreement when the budget is set.
- Benchmarking. A firm may set budgets that reflect the industry’s best practices and are in line with business organizations of similar business size. Any increase in the overall promotion budget by one of the firms will be quickly matched by the other competitors.
Most importantly, remember that budgets need to be SMART – Specific, Measurable, Agreed, Realistic and Time-Constrained.
Good luck with setting the budget for your business.
