Business Plan Master Budget
The master budget is an extremely important part of the planning process for your business. The master budget you create for your company allows you to do two very important things:
Live within your means. Your master budget summarizes your company’s anticipated sales, cost of goods sold, operating expenses, capital expenditures, and cash flow. By constructing your company’s budget to align with your projected cash flow, you establish spending guidelines based on the most realistic financial picture you have. The budget, of course, fills in all the details.
Use your money wisely. The master budget allows you to keep spending in line with your business plan. That way, you allocate funds in the most effective way possible to achieve company long-term goals.
To prepare a budget, start with copies of your projected cash-flow statements for the next year or two, paying particular attention to the section that lists where you expect to use cash.
Then take each of the broad categories (cost of goods acquired; sales, general, and administration expenses; buildings and equipment; and distributions to owners) and create detailed plans for each entry, defining, for example, exactly how much money your business should spend on a service or a piece of equipment.
If your company is large enough, you may want to get a few of your colleagues involved in the budgeting process. Creating a master budget is a big job. By working with the key people around you, you spread the effort while also upping the odds that your management team will buy into the master budget that you come up with.
Your master budget is a key part of your business-planning efforts, but you may or may not want to include it in your written business plan. For most of your audience, your pro forma income statement, estimated balance sheet, and projected cash-flow statement will provide enough information about your future finances.