 In this presentation we will discuss the question of why budget? In other words, what are the benefits of budgeting? One of the primary objectives is to have a future orientation, a future analysis, a future look to give everybody in the company an idea of first a word from our sponsor. Well, actually these are just items that we picked from the YouTube shopping affiliate program, but that's actually good for you because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased, and used ourselves. Here we have a western digital WD elements 20 terabyte USB 3.0 desktop external hard drive we use as part of our backup system noting that if you lower the number of terabytes of storage the price will lower dramatically as well. 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If you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot thinkific dot com where we have many different courses you can purchase one at a time or have a subscription model given you access to all the courses courses which are well organized have other resources like excel files and pdf files to download and no commercials where the company is going in general and then a map in terms of how are we going to get to that future objective this seems obvious but if you take a look at different departments it's not as obvious as we might think because part of a company's objective is to divide tasks up by department and different departments are really geared towards what they're doing on a day-to-day type basis so it's management's job then to have that future orientation to be looking into the future to be planning that endpoint to be planning where the company is going what's the direction of the company from an overarching type of standpoint and then help the others to see that overarching standpoint within different departments so that each department although they are looking for the day-to-day goals and you'll note that many supervisors that are working within a particular department are really managing the day-to-day they're trying to get through the day manage all the problems that happen on a day-to-day basis it's not really the management's job all the time of a particular department to take the step back and have that big picture vision that's what the upper management is there to do to have that big picture vision and then align all the management together with that in order to apply that big picture vision however we do want to have everybody in the company to have a glimpse and have participation be able to see what that big picture is so that when we go into those day-to-day tasks when we go into the things that we got to do each day when we solve those problems each day we have at least in the back of our mind the big picture focused and we can take actions that are in alignment with the big picture focus even if possibly they don't line up with the exact policy that we are looking at or the exact rule or if there is no rule for one set or circumstance that happens if we have a big picture focus a big picture view then people that are managing particular departments can then say okay i know what to do within this situation because it's in alignment it's in congruity with our big picture goals and objectives another big objective is to communicate the plans with the organization so we want to be able to have the plans and oftentimes we think of top management coming together with a strategic plan that they're then going to implement but in order to implement the plan we really need to be able to communicate the plan and the communication of the plan will have a lot of different effects as we go into this process note when we have the budget as well the budgeting process should be a communication project in and of itself because that helps with the flow of ideas with the flow of communication both up from the bottom up to management as well from the top management on down in terms of the communication of the final direction that we can then be clear on and going forward and be able to put together the steps that will be necessary in order to move forward in an efficient way therefore the creation of the budget should be one that has communication with that creation so everybody feels like they have their input in the budget that they're part of the budget they're part of the plan and the execution of the plan then they are personally invested in once the plan has been made then it's the job of management to clearly define what the plan is once the budget committee has come up with the plan so that everybody is fully aware of it everybody can be in congruity with it and everybody can take steps along the way in the future as the future unfolds in accordance with the steps that have been laid out with the plan with the budget the budget should also make those long-term strategic plans into more short-term financial plans so it's going to be the job of management to have an idea of what the long-term plan for the company is what's the five year what's the 10 year plan for the company those overarching plans the objectives the goals of the company the mission statement of the company and then break those down into smaller chunks because the smaller chunks are the actual roadmap that we can see we can see only part of the road as we go forward and therefore we need to zoom in on that part of the road so we are conscious of what we are doing we're focused in on the steps that we need to take going forward while keeping in mind especially upper management keeping in mind but also communicating to the rest of the company what the overarching goal what the five-year goal what the 10-year goal is we want to have the overarching vision of where the company is going but then the budget of course is there to break that down into digestible chunks chunks that we can then see clearly going forward chunks that people within the company then know and can use in order to make the steps and decisions in the immediate future in the next month in the next year in the next week in the next day another objective of the budget is to provide a benchmark that we can then use to measure actual performance against so in other words when we make the budget we're saying this is what should happen this is what we think is going to happen we want to make that as numerical as possible because numerical items are easy for us to then compare in other words we say this is what we think should happen if we can measure it in terms of dollars that's very concrete that's easy to measure then we say hey this is what actually happened at the end of the time period that we had previously budgeted for and of course the difference between those two is something that we can then look into and think about and consider why so that we can then make another budget for the next period and move on and on and on in this fashion hopefully improving improving and improving another major goal of the budgeting process and one that's often overlooked is the motivation of employees through participation it's often thought that the budget's going to be applied from a top down type of perspective and sometimes it is but we want to be careful of that because we really want to have the bottom up type of feedback we want to make the budgeting process a communication process because it's a really big opportunity for us to have that communication process we want to be able to have all places within the company be able to give feedback so they feel like they're invested in the plan they've contributed to the plan they are part of the goal that has been taken on through the budgeting process and therefore they're personally invested in the outcome the only way to do that is to really get the feedback from everybody within the budgeting process so the budgeting process huge opportunity for communication to help everybody to feel heard it does not mean of course that it's going to be a democratic process and we're all going to take a vote and decide what the budget is but it does mean that the process of creating the budget should be in a systematic way and that the governing of the process should be in the format of how can we get the best information and everybody in the company should hopefully know that the budgeting process is designed in that and with that end goal in mind to get all the information that's what the budgeting process is for and then of course the final decision is made final decision made by management once the budget has been completed then hopefully every feel everybody feels like they have invested that they have been communicated with well to that that they've been able to contribute and that any kind of response to the budget in any decision that has been made has been well communicated hopefully in a way that addresses any consenting viewpoints so that everybody feels invested in the budget and then the implication the implementation of the budget can happen and management then wants to implement the budget and make sure that the plan is then executed once the decision has been made once the budget is set down and we're moving forward with it then we want to make sure that the plans of the budget are clearly communicated the process of making the budget now having been ended now we're in the implementation of the product of the budget and want to make sure that the implementation the communication of the goals of it are now communicated from management to the employees and in a way that everybody understands what those goals and objectives that everybody has decided and invested in are so to recap our budget objectives it should promote future analysis of thought and direction so it has everybody kind of focused on the goals of the company and the goals that are going to be the future orientation so if there's any question on the day to day type of activities that can happen they should have some idea we should have some idea of what to do given the overarching vision the overarching goals and objectives of the budget and the company communicates the plan to the organization so the organization everybody within the organization hopefully has a good idea of what the budget is how to act within the budgeting process what their department is required to do within that budgeting process because those steps have been well communicated make long-term strategic plans into short-term financial plans so we want to have an overarching vision upper management does of course want to communicate that vision but also want to communicate how we're going to get there on a step by step year by year month by month day by day type of basis so that people within the organization can then see the overarching vision but also what they got to do immediately they see the road in front of them how to take each step as they go along the right the way provides benchmarks for evaluation we should be able to compare what we do on the budget to what actually happens that given us feedback on our progress so that we can then make another budget and it motivates employees through participation it really should be a communal kind of activity if everybody if it if it is it's a huge benefit huge opportunity for everybody to feel like they put some feedback into the budget not necessarily feeling like the budget did everything that they wanted that's obviously not going to happen but feeling like the process was good process was geared to get communication to get feedback and all of that feedback hopefully was addressed and therefore people feel like it was a it was a good process to go through and therefore are invested in the plan and then once the plan is implemented they will feel invested in carrying out the plan and achieving the goals and objectives of the budget