How to Calculate Total Budget
Original post by Ben Taylor of Demand Media
A company's total budget is the sum of all its expenditures over a given period of time -- usually a financial quarter or fiscal year. A total budget, which is also known as a master budget, comprises the amount of money available to cover expenses such as payroll, investments, product development and marketing. A company's total budget reveals how it prioritizes its spending and provides financial data that can help determine whether a firm is a solid investment opportunity.
Establish a time frame for your calculations. If you are calculating a total budget for your personal finances, consider using a shorter time frame for a more accurate distribution of your financial means. If you are calculating the total budget for a company or potential investment, the time frame is most likely reported on a standardized schedule.
Total the amount of revenue that will be generated during the time frame. Use projected annual sales and gross sales to get started. Effective budgets plan for both short-term and long-term expenditure, and incorporate short-term and long-term cash flows into the total budget.
Identify the the sum of all costs for which you or the company will be liable over each time frame. Sort each expenditure based on the time for which it is a concern, then classify each cost as fixed or variable. Rent and mortgage payments, for example, are long-term fixed costs. Costs that change relative to the number of sales the company makes are called variable costs.
Allocate enough money to cover each of the fixed and variable costs for both long- and short-term budgets. The total budget represents how a company's expenditure in one area compares to that of other areas. Most of the budgeting calculations will be detailed on budgets that are specific to one area, with the bottom line of each summarized and reported on the total budget.
Cover any deficits in the budget by cutting expenditure to match realized and projected revenues for the time frame. If you or the company have a surplus, consider allocating the remaining revenue, including projected revenue, into income-generating investments or savings accounts. Saving and investing responsibly will help keep a business afloat during rough financial times and indicates that the company is a responsible steward of its assets.
Express expenditure for each department and project as a percentage of the total budget. The necessary budget for each department will vary from business to business, though Williams asserts that a fixed percentage of revenue is too restrictive a paradigm for a company to follow.
Tips & Warnings
- Use a computer spreadsheet to enter calculations involving revenue and expenditure. This can help you organize your calculations, and allow you to use the spreadsheet's formulas to expedite your budgeting calculations.
- Computer spreadsheet
- Financial statements
- "Entrepreneur" magazine; "Calculating Your Ad Budget"; Roy H. Williams; 2011
- "Entrepreneur" magazine; "Building a Financial Budget"; Rieva Lesonsky; April 20, 2006
- MoneyTerms: Variable Costs; 2011
About the Author
Ben Taylor has been writing since 2005 and has had work published by WEKU-FM and West Virginia Public Broadcasting both on air and online. Taylor holds a Master of Arts in English from Eastern Kentucky University and currently teaches composition and ESL there.
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