Connect with us

Business

A step-by-step budget preparation process

Published

on

In this article I will take you through a step-by-step process of preparing your budget. You are coming to the financial year end and you therefore need to start preparing your budget if you have not already done so. It’s critical that your organisation has a budget so that it can help you in planning, coordinating your company’s activities, tracking performance and also in motivating your staff since they will have a target to work to. Without a target, your team will be groping in the dark as to what they would like to achieve.
The following steps discussed below are indicative of what many organisations follow although there could be some slight differences but the main the principles are the same.

The first step that should be done is to ensure that managers have the strategic plan or long term plan. The strategic plan will give direction as to what the organisation would like to achieve over a long period.
The strategic plan gives guidelines to the managers who will be preparing the budget. They will have the broad targets that need to be achieved. It’s very critical that before starting the budgeting process you communicate the details of the strategic plan to the managers who will be involved in budgeting. You should then also communicate the budget guidelines to the managers.

These will refer to economic indicators that the managers should take cognisance of during budgeting. These factors would be forecasts of inflation rate, interest rate, wage rate increases, changes in productivity and information about industry demand and output. These will help when preparing the budget.
The next step will be the determination of the limiting budget factor or the principal budget factor. The limiting budget factor is a factor which places a limit on the activities of an organisation. In most organisations the principal budget factor is the sales demand: in such a situation the company will be restricted from making and selling more of its products because there would be limited sales demand for the output at a price which would be acceptable or profitable to the company.

In some situations, the principal budget factor may be lack of adequate machine capacity or the limited availability of key raw materials or the availability of cash. You therefore need to establish exactly what the limiting factor is for your company. Once this factor is defined, the rest of the budget can be prepared based on this limiting factor.
For instance, if sales are the principal budget factor the production department can only prepare their budget after the sales budget is complete because quantities to be produced will be dependent on sales quantity. Each organisation needs to determine exactly what will limit its operations.
If sales demand has been determined as the limiting budget factor then the sales department will prepare their budget before other departments whose budget is dependent on sales. The sales team will prepare the sales volume expected to be achieved in the coming year.

In arriving at sales forecast the following factors have to be taken into consideration: prior years’ sales patterns, the economic environment, pricing policies, competition, and legislation, changing consumer tastes and results of market research if you have done one. There are a number of methods that you can use in forecasting the sales figures. You can use the results of a market research, or sales personnel can estimate from their customers demand, or you can check requirements by customers from annual contracts if there are contracts with customers. You could also use some statistical methods of forecasting.

Based on these sales figures, production can start preparing their production budget. The production department will have to look at finished goods stocks and then decide on closing stock levels required and then determine the quantity to be produced. The production budget will be in units at this stage.
After preparing the production budget, you can determine the machine capacity or machine utilisation required and the inputs into production which will be the raw materials, labour and any other consumables.

The materials usage budget will be based on each type of material required by units and then by costs. An element of normal loss likely to be incurred in production through breakage, or wastage should be built into budget. The machine utilisation budget will show the operating hours required for each machine. This will help the number of machines to be deployed in production and the figures will also be used by maintenance department in preparing their budget.
The labour budget prepared by production will be expressed in hours for each grade of labour and then converted to cost in consultation with human resources department.

The labour hours should build in an element of idle time due to machine breakdowns or other factors that might affect smooth production.
Once these budgets have been prepared the finance team can now prepare the selling, administration and distribution expenses budgets. When preparing each of these budgets the expenses should be based on the drivers of the costs. For instance if it is fuel costs you are budgeting you should base the expense on the number of trips to be made, fuel usage per litre and the price of fuel. By basing the budgeted expenses on the cost drivers it will be easy to then control that cost because you will have to control the cost drivers like trips or the price of fuel by choosing the cheaper supplier.

Once managers have prepared their draft budgets they should submit to their superiors for approval. The manager will negotiate with his superior for the initial approval of the budget. Each of the departmental budgets will consist of the revenue and expenditure budget and the capital expenditure budget.
All departmental budgets are then sent to the finance department after being approved by department heads. The finance will consolidate all budgets into one master budget for the company. The master budget will be comprised of the income statement, the cash flow and the balance sheet.

The master budget is presented to the budget committee for approval. The committee will ensure there is consistency with the long term plan since the budget should be derived from the strategic plan.  After approval of the budget by the budget committee the budgeting process does not stop there. Actual results should be compared on a regular basis with the budgeted figures.  It is vital that the budgeting process follows the correct order based on the principal budget factor and that the overall process should be co-ordinated to ensure that the budgets are all in balance with each other.
Enjoy your budgeting.

l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062. Website shekinaconsult.com.

Continue Reading
Advertisement

Business

Start-up companies win big

Published

on

TEN start-up companies were awarded about M130 000 each as capital at a ceremony held at the Limkokwing University of Creative Technology yesterday.
The companies include Rosemore Couture, Techno Map ICT Company, Nkhekhe Innovative Solutions, Travel Tag Lesotho, Weekly Observer Electronic Newspaper, Media Lab Multimedia, and Green Lovers.

The awards were given under the Limkokwing Entrepreneurship Acceleration Platform, part of higher education institutions and corporations and companies that spearhead incubation programme for start-ups.

These Enterprise Support Organisations are from the Limkokwing University through its LEAP, the National University of Lesotho’s Innovation Hub, Basotho Enterprises Development Cooperation (BEDCO), The Entrepreneurs Network (TEN), and Gem Institute.

Each of these organisations was awarded M1.9 million, totalling M9.5 million.

The initiative sprang from Lesotho’s acquisition of a loan from the International Development Association (IDA) of the World Bank to execute the Lesotho Competitiveness and Financial Inclusion (CAFI) Project.

CAFI’s purpose is to enhance the availability of business support services and financial products for Small and Medium Enterprises (SMEs) and entrepreneurs, with a special emphasis on women and youths.

Limkokwing’s Enterprise Support Organisation manager, Lisema Ramaili, said the ceremony marked “a significant milestone into our journey and highlights the impactful work we are doing to support entrepreneurship and economic growth”.

“It also marks a significant step forward in our allegiance to foster innovation and entrepreneurship,” Ramaili said.

“I look back in all the journeys that we have travelled, from application to this programme, consolidating our proposals,” she said.

Limkokwing University’s Vice Chancellor, Advocate Tefo Macheli, said it is good that the small businesses are being helped to stand on their own as Lesotho marks its 200th anniversary.

Advocate Macheli said Limkokwing and the government awarded more than M1.2 million to small businesses.

“The Limkokwing University of Creativity Technology and innovation in cooperation with the Lesotho government made history that small Basotho enterprises are supported,” Advocate Macheli said.

“It has always been a challenge to the youths to start or have their own businesses because they were not supported financially” he said.

He said the Lesotho government is working hard to promote small Basotho enterprises which has not been happening in the past.

The university also provides business space with all necessary resources like water and electricity for its students in the understanding that “students are fresh from school and do not have any means of funds to have their own resources”.

Moleboheng Rose Molatelle, co-founder of Rosemore Couture, said that they first filled application forms with their business ideas and bankable business plans.

“Very fortunately I was among the top 20 that were to pitch and was able to meet the requirements,” Molatelle said.

Rosemore Couture is a clothing company.

Molatelle said the company needs equipment to grow its clothing footprint in the market.

“We need to go on with the production and add more workers so that at end of the day we could have a big company,” she said.

Staff Reporter

Continue Reading

Business

Khemisi bags the big prize

Published

on

HOA Hlamatseha is a Sesotho expression that means lots of riches. Econet Telecom Lesotho is running a campaign by that name.

This week, Mamiki Khemisi struck the jackpot after she won the M150 000 prize during the Hoa Hlamatseha #EconetBlueOceans campaign for January.
The winner, from Masowe in Maseru, was announced at an event held at the Sefika Complex on Monday.

The Hoa Hlamatseha campaign allows customers to participate in a series of engaging activities, ranging from sending SMSs to opting-in as they purchase data or calling bundles.

Each participation earns customers points, contributing to their overall tally and increasing their chances of winning the grand prize.

Beyond being a celebration of connectivity, the campaign demonstrates Econet’s commitment to fostering a sense of community and shared joy.

“This campaign, a hallmark of Econet Telecom Lesotho’s commitment to celebrating and giving back to its loyal customer base, represents a culmination of joy, generosity, and community spirit,” ’Mapusetso Ntšekhe, Econet’s General Manager for Marketing, Communications and Customer Experience, said.

Ntšekhe said Econet recognises the importance of cultivating lasting relationships with its customers and understands that customer loyalty goes beyond the quality of service alone.

She added that by organising such campaigns, the company aims to foster a sense of belonging and appreciation among its customer base.

“Handing over this M150 000 grand prize winner for the month of January symbolises Econet’s dedication to make a meaningful impact in the lives of its customers and the broader community,” Ntšekhe said.

“In a world where communication is crucial, Econet is not only bridging the digital gap but also creating a bridge of shared joy and celebration,” she said.

Khemisi joins a distinguished list of individuals who have been positively touched by Econet Telecom Lesotho’s commitment to excellence and innovation in Lesotho’s rapidly evolving telecommunications industry.

Her selection as the grand prize winner serves as a testament to her loyalty and the enduring bond between Econet and its valued customers.

“I’m overwhelmed and equally excited to be announced by Econet as the winner of the M150 000 grand prize,” Khemisi said.

She further noted that “this amazing reward for my involvement in the campaign will be essential towards establishing a juice bottling company that’s already in the pipeline in partnership with my mom”.

By unveiling staggering cash prizes of M100 000, M150 000 and M200 000, Econet is setting a new standard for corporate generosity aimed at alleviating challenges faced by individuals and families in tough economic times.

In addition to the grand prizes, Econet customers also have the chance to walk away with M500 in daily prizes, M2 000 in weekly prizes, and smartphones.

Staff Reporter

Continue Reading

Business

Chicken import ban lifted

Published

on

BASOTHO will finally have chicken on their dinner tables after the government lifted a ban on poultry products from South Africa imposed four months ago.
The Department of Livestock Services said the decision was with effect from yesterday.

Keneuoe Lehloenya, who is the Director of Livestock Services, said the department had decided to lift the ban imposed on poultry products from South Africa “except Gauteng, Mpumalanga, Limpopo, and Western Cape provinces”.

She said import permits will be issued only for compartments certified free from the Highly Pathogenic Avian Influenza (HPAI), a serious bird disease that requires a rapid response because it is highly contagious and often fatal to chickens.

Lehloenya said it is South African veterinary authorities that will issue certificates for farms that are free from HPAI.

The import permits by Lesotho authorities will not be given for poultry products from “farms situated near or epidemiologically linked with affected farms”.

“They will not be considered for import,” she said.

The lifting of the ban comes after Agriculture Minister Thabo Mofosi temporarily banned imports of all poultry and poultry products from South Africa due to the bird flu outbreak last November.

The highly infectious bird flu had struck several provinces in South Africa, affecting major chicken farms.

There were reports that South Africa had culled 7.5 million birds, between 20 and 30 percent of its production chicken stock.

Mofosi issued the directive revoking all import permits for poultry and poultry products with immediate effect.

The bird flu outbreak came as South Africa’s chicken industry was already grappling with power shortages which have hit their production.
Chicken is the most imported meat in Lesotho.

In the 2019/2020 season, chicken constituted 81.1 percent of meat imports from South Africa.
Pork was at 15.8 percent, beef at 2.3 percent and mutton at 0.7 percent.

Nkheli Liphoto

Continue Reading
Advertisement

ADVERTISEMENT

Advertisement
Advertisement

Trending