The Budget

So budgeting is everyone's favorite subject but it is so necessary if a business is going to be successful. I had the great opportunity to interview a very successful businessman who spent many years before his retirement running a company that manufactures and recycles metal products. For our assignment this week we were to interview someone in leadership regarding budgets. Here are the questions and answers...

1. How often is your organization’s budget reviewed?

The budget is reviewed monthly, At the end of every month they would look at sales and expenses. They would compare the budget to the actual expenses and profits. If there was a discrepancy somewhere, it would be addressed.

2. What is the process for modifying the established budget?

This company has a Board of Directors that would review the budget to determine how they were doing. The board represents the owner. They would get with the board to see how they actually did v. the budget. They would approve any budget changes if necessary.

3. What is the hardest part about making budget cuts?

The hardest part about making budget cuts is cutting employees hours or letting an employee go. At the same time, when making budget cuts you are telling everyone they what they are already doing needs to be done with less expense/hours/materials. For example, in this business when the employees are working in a colder environment where they use heaters they will need to do the same job in the same location with less energy use. Therefore, the heaters need to be turned down 20 degrees to save costs.

4. How have you used program information, financial statements and related information to prepare a budget?

Your financial statements are like score sheets. Those show expenses, labor hours, other costs and profits. Those need to be compared to what actually happened. Items will show up as a red flag if things are not working right. Financial statements are a game plan at the beginning to how company is going to make money.

5. Who from your company is involved in the budgeting committee and process?

Senior management and board of directors. Senior management includes the Senior President, operations president, and Chief Financial officer (head accountant).

6. What measures are taken if you go over budget?They look at efficiency, if it is costing too much where can changes be made. You need to cut corners maybe in raw materials or too much power. Under budget? If you are continually under budget, the budget may be incorrect. It is good news but you want them close to what you think you can do.
7. What prior work or education experience do you have that has helped you budget?

He has cost accounting experience and that really focuses on budgets and the processing so budgets will work well. In his early years he would walk around with clip board and watch processes to see if expenses were utilized efficiently. He would also watch sales and how that was working in the field.Staying in the office is a mistake. Getting out in the field and seeing what they are doing and where the costs and profits are coming from.

8. What is typically the first thing you cut when trying to bring back the budget?

In most cases it is going to be labor. You can cut back on advertising and general administrative costs when necessary.

9. What is the last thing you tend to cut at your business?

Would not cut sales. Without sales, where would you be.

10. Would you be able to effectively curb spending if n
11. ecessary?

Yes you can always curb spending. There are always areas to cut costs. You may not want to but they are there.

11. What is your budget preparation process? What steps do you take to prepare?

They focus on what has been done in the past with sales and expenses. Historically, here is what each items costs and where the money is going and coming from. If more is being built, more expenses will be incurred. If past history wasn’t profitable, changes need to be made at this point to make money. After all, it is business and it is about making money. If it wasn’t working in the past, don’t continue to use the same budget. Utilizing the budget and making any necessary changes is how companies make money and stay in business.

12. Who is the budget reviewed with prior to finalization?

Owner/board of directors and senior management. Again, senior management consists of the President, Vice President in charge of operations and the Chief Financial Officer.