How Timing Impacts the Budgeting Process - dummies

How Timing Impacts the Budgeting Process

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

Different business decisions have different timelines that depend, in part, on the dollar amount of the decision you’re making. Understanding your timeline helps you make intelligent decisions about spending.

For example, if you decide to use a different supplier for your materials, you could start buying materials from that company immediately. No problem. On the other hand, completing a move into a newly constructed building may take a year or more.

You need to consider timelines for your more expensive business decisions. If you’re building a new office, determine how long the construction will take. Based on the timeline, you can plan your payments for the building and how you’ll generate cash to make the payments.

Explain your timeline in your business plan. If you’re providing financial statements for one year, you may need to explain payments for a building (asset) that isn’t yet completed. It’s perfectly reasonable to expect a business to pay for major assets over a long period.

Just be sure to explain it to your investors or lenders. You may have a one-year operating budget, along with a capital expenditure budget for three to five years. The capital expenditure budget is the big-things-I’ll-buy-and-pay-for-long-term budget. This budget helps you and others visualize your long-term plans and spending.