General Budget
Let’s talk about General Budget.
General or master budget is the outcome document of tactical financial planning. The General Budget is a combination of the three main budgets: 1) the budget of revenues and expenditures, 2) the budget of cash flow, 3) settlement (predictive) balance. The above mentioned financial documents should predict financial performance (first paper), current solvency (second paper) and financial stability (third paper) of the enterprise.
Methods for general budget depend on the direction of the budgeting process: from top to down or from down to the top. It is appropriate to use counter plan with a view to effective development of managerial decisions. Fundamental norms of rates and proportions (strategic options) go from the top to down and on the contrary – the budgets of individual businesses. If we take the principle of counter-planning as a basis, the general budget will include the addition to the three major set of operational and support budgets.
The composition of the general budget:
1. Core Budget:
income and expenses;
cash flow;
balance of payments.
2. Operating Budgets:
Sales volume;
stocks of finished products;
Production budget:
a) budget of production;
The budget of material costs;
a) budget of direct labor costs;
d) budget of direct operating costs;
d) budget of overhead (general production) costs;
management costs;
commercial expenses.
3. Subsidiary budgets:
Plan for capital (initial) costs;
credit (investment) plan.
The process of development of the general budget is suitable for certain types of business. For a company with several businesses (unincorporated), we should make combined or consolidated core budget, which amounted to a mechanical summation of the articles in three major documents: the income and expenditure, cash flow and forecast balance.
The consolidated budget should be prepared to corporations, in which a structure there is parent and subsidiary companies with the status of legal persons. The consolidated budget is not a mechanical sum of items in the budget of individual legal entities. This document does not reflect transactions between members of the corporation; it includes only the income and expenditure, assets and liabilities arising from third parties.
Until now, the Russian practice of these concepts is mixed. For a clear division of their essence we must modify the regulations of the Ministry of Finance to submit consolidated financial statements.
Thus, the proposed concept of financial planning for businesses and corporations based on the following principles.
We need a single methodological approach to financial planning, based on the idea of development of market relations.
The main paradigm of financial planning should be the idea of a strategic, rather than long-term management.
In the strategic management of financial planning we should include a sequence of documents: a strategic plan (system of objectives), financial policy (
program) and the core budget (tactical plans).
For a basis we have to accept the counter plan: from the top to down and vice versa.
By normative documents we should clearly separate the concept of synthesis, or consolidated the budget for the company and the consolidated budget for the corporations.
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