Everything you need to know about Departmental Budgeting
Departmental Budgeting can be a great way to build a bottoms up forecast that is both accurate, and defensible
But the process can be tough, especially if it’s your first time
➡️ What is Departmental Budgeting?
Departmental Budgeting is the process of preparing a budget with the help of Department Heads
➡️ When Should You Prepare a Departmental Budget?
The answer can vary based off of a number of factors, such as
⚫ Company Size
⚫ Number of Departments
⚫ Level of Transparency Available to Each Department Head
⚫ Systems & Tools in Place for Tracking & Forecasting
The general idea is that Departmental Budgeting is something that companies start to think about as they grow to a larger number of hires
➡️ How Do You Prepare a Departmental Budget?
1️⃣ Start by Understanding the Existing Structure of your Data
Do you have your chart of accounts set up so that each department has it’s own section?
Do you utilize a class feature, allowing you to drill into an added dimension to see departmental figures?
2️⃣ Outline Who will do What
Once it’s clear how your data is being tracked, make a list of each of your department heads
❔ Who will be responsible for each department?
❔ What information will they have access to?
❔ What is their level of knowledge with Finance & Accounting?
3️⃣ Export your Existing GL Account Information
It’s important to provide any information on what is currently happening in their department, as much of this activity will most likely shape the projected spend
4️⃣ Prepare intake forms
Once the Department Heads have insight into what is CURRENTLY happening, they can then enter in the details around what they are PLANNING to happen
5️⃣ Forecast your Headcount by Department
In addition to reviewing the information shown on your General Ledger, you’ll want to showcase who is currently in their department, and all of the associated details with each hire
Once you have all of this information collected, you can combine each intake form into your Financial Model
It’s important to remember that Department heads most likely don't have a strong Finance & Accounting background, so they may need your assistance in completing this process
Once you are finished - don’t stop there!
Provide ongoing reporting to ensure that the company continues to stay aligned on it’s plan, and it’s progress against that plan
These are my suggestions from my experience preparing Departmental Budgets - what would you add?