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A step-by-step budget preparation process



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:, call on +266 58881062 or WhatsApp +266 62110062. Website

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Short courses for ex-mineworkers



THE Lesotho Diamond Academy has introduced mining short courses, particularly to ex-mineworkers, to help them re-enter the mining sector.
The Essential Introductory Courses, which will run for two weeks, will start from June this year. The courses are meant particularly for people who worked in mines in South Africa.

The Academy’s CEO, Relebohile Molefe, unveiled the new courses during the graduation of 18 students last week, four of whom are now armed with Cutting and Polishing certificates while 14 graduated with Rough Diamond Evaluation certificates.

The new courses include the Essential Certificate in Diamond Grading and the Essential Certificate in Diamond Evaluation.

“The decision to offer these courses aligns with the Academy’s dedication to bridge the gap and ensure that individuals with valuable experience can seamlessly reintegrate into the diamond and jewelry industry,” Molefe said.

“By providing short courses, the academy does not only impart essential skills but also contributes to the sector’s growth by reactivating experienced individuals who had lost access to the industry due to no formal documents showing their experience in the industry,’’ she said.

During the graduation celebration, Molefe also unveiled a new sponsorship programme for various courses.

One outstanding student previously sponsored, who demonstrated exceptional proficiency in Rough Diamond Evaluation, was granted a fully funded bursary to further his studies into Advanced Certificate in Round Diamond Brilliantering.

In pursuit of its multifaceted objectives, one of which is to serve as a catalyst for employers in the diamond and jewelry sector to devise skills development strategies, the Academy is set to sponsor four additional students in the upcoming intake starting from February 15.

Two of these bursaries will afford a 30 percent discount on overall fees for two students progressing from Cutting and Polishing to advanced studies in Rough Diamond Evaluation.

Two will be fully funded bursaries to study for a Certificate in Diamond Cutting and Polishing.

Additionally, the institution will extend two fully funded bursaries to the public, fostering inclusivity and expanding opportunities.

The Academy says it plans to announce the search for two deserving Basotho individuals on its social media pages and website.

“Importantly, the bursary programme bears no age restrictions, reflecting a commitment to fairness and inclusiveness, ensuring that opportunities are accessible to all, irrespective of age,” it says in a statement.

The Academy says it seeks “to be a dynamic force in shaping the industry, not just within national borders, but also on regional and international platforms”.

“The emphasis on competitiveness within these markets underscores the institution’s commitment to producing graduates who are not only proficient but also globally competitive,” the statement reads.

“The recent graduation ceremony symbolises a milestone in the Academy’s journey. The success of its students is a testament to the quality of education and the foresight embedded in the curriculum.”

The Academy says its decision to sponsor further education for outstanding performers reflects a belief in nurturing talent and contributing to the continuous improvement of the diamond industry.

The Lesotho Diamond Academy was founded by the late Mpalipali Molefe, a prominent educator, diamond trader and an MP, who recognised the imperative to elevate professionalism in the diamond industry.

Staff Reporter

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Bank hands over uniforms to students



THE Lesotho Post Bank donated uniforms to students at Leqele High School worth a staggering M60 000 as part of its Back-To-School campaign.
The bank said it did this “to keep needy children in school and to promote their education”.

A teacher at the school, Tšepo Semethe, said the uniforms will likely motivate the students to work harder in their studies.

Semethe insisted on giving the bank the names of the students so that it could check their performance at the end of the year.

“At Leqele High School, we work very hard because what we want is excellence above all. To us, hard work pays,” he said.

The bank’s Chief Risk Officer, Molefi Khama, said they are getting old, they will soon retire and Lesotho Post Bank will be in the hands of these children.

He pleaded with the students to work harder.

“This is why we decided to come here to support the students in their education so that when coming to school, they should be confident,” Khama said.

“We are watching you and waiting on you,” he said.

The school’s head prefect, Tholoana Monatsi, said from now on, “no student will be identified by what they wear”.

“(Lesotho) Post Bank made us one and we thank them for that because what we wear cannot stand before our education. We indeed thank you and forever you will hold special places in our hearts,” she said.

A parent, ’Marorisang Latela, said they were very grateful for the gift from Lesotho Post Bank adding that they must also donate to other schools.

Minister of Trade, Mokethi Shelile, promised to go back to the school to discuss how the children could learn in comfortable surroundings.

Relebohile Tšepe


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Mamello School of Special Needs wins prize



MAMELLO School of Special Needs is the first-place winner of Standard Lesotho Bank’s Scaled-Up Pitching Den held at Maseru Avani on Tuesday.
The school has secured a grand prize for an all-expenses-paid trip to Kenya to participate as a finalist representing Lesotho at the Standard Bank Africa Awards.

The school, pioneered in 2020 during the early days of the Covid-19 pandemic through Zoom classes, deals with children who live with conditions such as autism, attachment disorders, Attention Deficit Hyperactivity Disorder (ADHD) dyslexia, Down syndrome and slow learners.

STKTM Solutions claimed the second-place spot, receiving a commendable M10 000, while Masia Farms secured third place and a M5 000 prize.

Pheello Masia of Masia Farms, thanked Standard Lesotho Bank for backing their vision and that of other Basotho entrepreneurs.

He acknowledged that the bank’s faith in their endeavours serves as a source of inspiration, propelling them to work harder and foster growth within the community.

The event, aimed at fortifying support and fostering regional integration for Basotho entrepreneurs across the African continent, showcased the bank’s commitment to driving the growth of Lesotho.

Malatola Phothane, Head of Enterprise Banking at Standard Lesotho Bank, set the tone in his welcoming remarks.

“As Standard Lesotho Bank, through business and commercial banking, we strive to turn possibilities into opportunities,” Phothane said.

“Lesotho is our home, and we drive her growth,” he said.

His words resonated with the bank’s dedication to nurturing local talent and fostering economic development.

Phothane acknowledged the eight finalists, commending them for their resilience and passion for their businesses.

He emphasised how each entrepreneur had stood their ground, displaying knowledge and unwavering commitment.

The recognition not only highlighted the achievements of the finalists but also underscored the bank’s role in recognising and uplifting the entrepreneurial spirit within the community.

Aliciah Motšoane, founder of Prestige Furnitures and Sentebale Gap Funeral Services, played a significant role at the event as a motivational speaker, sharing her entrepreneurial journey filled with challenges and triumphs.

She recounted her humble beginnings when she was selling bread in high school, leading to the establishment of Prestige Furnitures in 1998.

Despite facing a significant setback after her shop was burnt down during the riots and incurring a loss of M5 million, Motšoane never gave up.

She said business is always a demanding endeavour adding that it needs hard work and a unique mindset.

She urged entrepreneurs to embrace their roots, seek inspiration, and persevere through challenges.

The keynote speaker, the bank’s Head of Business and Commercial Clients, Keketso Makara, said the bank is committed to foster a thriving business environment, highlighting the pivotal role of youth collaboration across diverse economic sectors.

Makara said their mandate aims to empower youths in steering the private sector towards growth, contributing to economic diversification.

Makara urged the eight finalists to actively involve bankers in refining their proposals for maximum impact on economic stimulation and sustainable development.

The bank said the Scaled-Up Pitching Den not only served as a stage for entrepreneurs to present their ventures but also acted as a driving force for networking, collaboration, and collective empowerment.

Staff Reporter


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