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Importance of communication in the budget process

Many small-business owners find developing and following a budget challenging, but you can use your organization's budget as a communication tool to help you vocalize ideas and strategies to your employees and potential investors.

Distinguishing Wants From Needs For your business budget to help you communicate with stakeholders, first distinguish between wants and needs. Prioritizing the business's needs over wants is a foundational step in budgeting.

  1. These are healthy especially when people who disagree can understand the inputs into the decision that was made. To facilitate communication, the process must provide visibility to both the decision process and decision basis.
  2. Having been heard, the process should then expect support for the decision made. Each budget should list details by activity in categories, such as design, operations, marketing, training, research, production or support.
  3. When a company clearly defines and communicates its mission and strategic goals, each department can align its work to achieving the objectives and determine what financial resources it needs.
  4. If there is sufficient visibility, they should at least appreciate and respect the basis for the decision.
  5. Aspects of the GPRA are aimed at rationalizing the information flow and its comprehensibility.

This means that you categorize all of the organization's expenses according to whether or not you can truly do without the item. Paying the mortgage or the electric bill is a need; buying doughnuts for employees every Friday morning is a want.

Ask yourself whether or not the business can do without whatever it is you are considering spending money on. If the answer is yes, you need to have a good reason to spend money on it.

How Is a Budget a Communication Tool?

Only when you're able to separate wants from needs are you ready to use the organization's budget as a tool to communicate with stakeholders that you are serious about the business's future. Project Communication On a basic level, the budget of a particular project or marketing scheme that you intend to run can be used as a communication tool to help you share ideas about the project with your team members. If you have a goal to buy a new office building within the next five years, you'll want to set aside money each month for that goal.

But you also need to think about saving for the inevitable "rainy day" emergencies -- when a company vehicle breaks down or the rent on your storefront suddenly rises.

Communications and the Budget Process

All of these things require money that isn't part of the normal day-to-day or monthly spending routine.

If you are diligent enough to set aside a little money each month, the business will feel a lot less financial and emotional stress when those rainy days occur.

Budgeting & Communication

The beauty of communicating this to your employees by showing them the numbers is that they will have a solid understanding of where the business and you as the business owner stand. Communicating With Investors Investors are a stakeholder group that certainly cares about your financial performance and budget.

Project Communication

Investors include any shareholders or business partners your company might have, as well as financial and banking institutions that lend money to your business or to a specific project. Cutting unnecessary expenses from your business's budget helps keep your financial house in order, and investors will want to see this. Your business's finances need to be ordered and easy for investors to understand.

The budget is the tool to help you accomplish this goal.

How Is the Budgeting Process Integrated and Communicated to Achieve Strategic Objectives?

Coupling the Budget with Solid Communication It isn't enough to simply present a budget to a potential investor or to your employees. If you plan to use your budget as a communication tool, you must be able to explain what the numbers mean.

By prioritizing the organization's wants over needs and by planning ahead, avoiding unnecessary expenses and working to increase your income, you'll be able to maximize your finances without sacrificing flexibility. Once you've mastered all of these things -- or are at least working to get there -- you can explain what you've done as the business owner to address the items in your budget. References 2 Oregon School Boards Association: Budget Communication Tools About the Author Jeremy Bradley works in the fields of educational consultancy and business administration.

He holds a Master of Business Administration degree.

  • The process and underlying information must be transparent so that all involved understand the decisions made;
  • Those who receive the requests 1 establish systems for limiting the requests since resources are finite and demands are not and communicate their desires to those who have to prepare budget requests , and 2 assuring efficiency in understanding and handling the information that is being communicated since superiors do not want to miss important matters that may get lost in a mass of information used to support a request;
  • However, in the decision process, disagreement is an essential part of the process that brings out risks, benefits, costs, and other implications.