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ACADEMY OF MANAGEMENT UNDER THE PRESIDENT OF THE REPUBLIC OF BELARUS

INSTITUTE OF PUBLIC ADMINISTRATION

Specialty: Public Administration and Economics

Specialization: State regulation of the national economy

TEST

on TAXES AND TAXATION

Introduction

2. Balancing criteria

3. Balancing tools

4. Du Pont diagram

Conclusion

Literature

Introduction

One of the most important types of resources necessary for the successful operation of any enterprise is finance. The competitiveness and market efficiency of any commercial projects and enterprises largely depends on how effectively financial resources are managed. The successful operation of an enterprise in a market economy and competitive environment is impossible without the use of modern tools for managing financial and economic activities.

What are the financial results of the enterprise? Will the company make a profit by the end of the year and what will be its size? Did the departments meet their allocated funds limits? How to minimize the risk of insolvency and balance the payment schedule? Getting informed answers to these questions in a timely manner means being one step ahead of your competitors.

financial balancing budget indirect

1. Statement of the problem of financial balancing of an enterprise

Managing a modern enterprise is impossible without operational cash flow management through the preparation of a payment calendar - a current financial plan for the receipt and expenditure of funds. Balancing consists of daily recalculation of the payment calendar based on actual data on the movement of payment instruments and making management decisions that allow reconciling the receipt and expenditure of payment instruments. Such decisions may be, for example, replacing or converting a means of payment, using borrowed funds, an agreement with the counterparty to postpone the payment deadline, etc.

When analyzing the cash position, it is often necessary to experiment, evaluating certain measures to improve the financial condition of the enterprise, finding the optimal solution. Any enterprise is faced with the problem of choosing: buy the necessary resources cheaper, but on an advance payment basis, or with deferred payment, but at higher prices. Financiers solve a similar dilemma when planning the activities of an enterprise as a whole: to focus the enterprise’s budget on achieving maximum profitability or to strive to increase cash flows and liquidity. As practice shows, it is possible to balance various financial indicators and draw up a budget that satisfies all the requirements of the management and owners of the enterprise.

Any financial decision in one way or another affects liquidity and profitability. Let's consider the criteria that you need to focus on when balancing financial indicators, as well as the tools for this balancing.

2. Balancing criteria

An ideal financial plan for an enterprise should have the following characteristics:

non-deficit cash flow budget. Receipts cover all payments, including investment payments, and repayment of previously assumed obligations (credits and borrowings), and also provide a liquidity reserve (to cover unplanned payments and in case of unforeseen delays in receipts);

return on equity satisfies the requirements set by business owners;

other financial indicators correspond to the goals of the enterprise.

It is also necessary to take into account that the owners may sacrifice the profit and liquidity of the enterprise for a certain period to occupy a free niche in the market and introduce new products.

The set of indicators that the financial plan should be focused on depends on the goals of the enterprise. Among the most significant criteria are return on equity (ROE), return on enterprise assets (ROA), net cash flow balance, efficiency and return on investment indicators, and the level of operating and financial leverage.

When forming a financial plan, an enterprise should not make decisions to the detriment of product quality, customer and staff satisfaction.

Unfortunately, in practice it is very difficult to create a budget that would meet the above requirements. As a rule, the first version of a financial plan satisfies some criteria and does not meet others. In this case, the problem of balancing the budget is posed. In this case, you need to focus primarily on the target indicators that are set by the owners of the enterprise, achieving acceptable values ​​for other indicators. You also need to take into account the approved enterprise strategy.

3. Balancing tools

The main tools for balancing financial indicators are the cash flow budget, compiled by the indirect method, and the Du Pont chart.

The indirect method of preparing a cash flow statement is well known to any financier. However, for planning and budgeting, many businesses prefer to use the direct method. At the same time, the experience of leading German enterprises shows that a cash flow budget compiled by the indirect method can serve as a good tool for balancing financial indicators. This form allows you to link the profit and cash flows of the enterprise and quickly assess how this or that management decision will affect the profit and dynamics of cash flow (see Table 1).

Table 1 Cash flow budget (indirect method)

Balancing is carried out according to the following algorithm:

A budget is drawn up based on basic conditions (with the most realistic sales volume and standard terms of settlements with customers) and profits and cash flows are calculated.

The terms of settlements with counterparties (customers and suppliers) are analyzed and various options for delivery and loading conditions (price - discount - prepayment) are calculated, from which the most effective one is selected.

A balanced budget is approved. A new credit policy of the enterprise is approved, corresponding to the approved budget. All contracts with counterparties must be concluded on the basis of this document.

The terms of settlements with counterparties (prices for raw materials and products, payment terms) are mainly a tool for building long-term relationships with buyers and suppliers, and not for optimizing the budget. In addition, one of the basic principles of the relationship between an enterprise and its customers and suppliers is the stability of these relationships. Therefore, changing the terms of delivery and shipment in order to achieve the desired budget indicators is not always justified.

Delta LLC is developing a budget for the next year. The management of the enterprise established that net profit should not be less than 15 thousand cu, and the excess of cash receipts over payments should not be less than 6% of the total amount of receipts (liquidity reserve or cash balance at the end of the period). Based on incoming account balances (balance sheet at the beginning of the year), the planned volume of product sales (5,700 units at 50 USD per unit) and the standards used at the enterprise (see Table 2), the initial version of the budget was formed cash flows (see Table 4, column 3).

table 2

As you can see, this option satisfies the given level of profit, but does not meet the established requirements for the amount of cash flow. The company has the opportunity to change its credit policy under the following conditions:

if the deferment of payment to suppliers is reduced by 10 days, the company will receive a discount of 0.5% on raw materials and other direct costs and, conversely, if the deferment is increased for every 10 days, suppliers increase the price by 0.5%;

reduction of accounts receivable for 10 days with an increase in discount to 1 cu. with units products.

The financial service of Delta LLC decided to assess how an increase in the accounts payable standard for 10 days and a simultaneous decrease in the accounts receivable standard for 10 days would affect the enterprise’s budgetary indicators. The calculation of receivables and payables is carried out with a breakdown by quarter and is shown in table. 3. As a result, a modified cash flow budget was compiled (see Table 4, column 4).

Table 3

Table 4. Cash flow budget (indirect method) (c.u.)

Indicators of profitability, solvency and balance sheet structure are the main balancing criteria. In the context of these indicators, both the general goals of the enterprise and the performance results of each central federal district are formed.

The balanced budget indicators correspond to the set goals. The enterprise should accept the proposed changes to the credit policy and approve the new budget version.

4. Du Pont diagram

The Du Pont diagram was developed and put into practice for the first time at the chemical company Du Pont de Nemours. Using this tool, you can balance the budget indicators of profits and losses and the forecast balance of the enterprise (see figure).

To calculate profits, the “ROI tree”, or the Du Pont model, and the essentially similar “cash flow tree” can be used. Then the influencing factors in the constructed models are changed and the results obtained are analyzed. It is also important to conduct a sensitivity analysis, which allows you to assess the degree of influence of a factor on the result and more accurately carry out balancing.

Du Pont balancing is similar to the modified cash flow budget approach, but with greater clarity. If the owners are not satisfied with the return on assets included in the initial budget, it is easy to determine from the diagram whether a decrease or increase in which budget items will contribute to an increase in profitability.

When creating a financial balancing model, it is necessary to take into account that in practice, as a rule, an enterprise cannot accurately predict how its financial indicators will change when certain parameters change. Therefore, to obtain more reliable results, it is recommended to build a model using probabilistic characteristics of the parameters.

Most often, balancing is carried out by attracting short-term credit resources, changing the timing of repayment of accounts payable and receivable. If certain circumstances arise, it is also possible to change the terms of work with clients. Before doing anything in the balancing process, it is necessary to carefully analyze the market situation and the conditions offered by competitors. Otherwise, ill-considered actions towards customers can lead to a sharp reduction in the company’s market share. The main financial tool for balancing is the cash flow budget, compiled by the indirect method. This allows you to track both the sufficiency of cash flows and changes in profitability. When performing balancing, a sensitivity analysis should also be performed. In the future, this will make it possible to more accurately predict the impact of each indicator on the final result of the enterprise.

Conclusion

Today, production efficiency in Belarus can be assessed as very low (about 60% of enterprises in the Republic have a profitability of up to 10%, of which 14% are less than 5%). Even if we take the profitability of products, which is determined by the ratio of profit to cost, it is clear that the practically officially named inflation rate is higher than the profitability of products. In fact, the enterprise has less and less real profit, for which you can buy a real product - machines, raw materials, equipment, etc. In 2007, the profitability of industrial enterprises in Belarus averaged 11%, and inflation was 11.2%. These indicators indicate low efficiency.

The causes of crisis situations in many Belarusian enterprises are disruptions in the movement of material and financial flows, in particular: the appearance of excess stocks of finished products caused by a decrease in the pace of sales. An increase in inventories drains additional cash, which causes a reduction in cash flow and reduces the solvency of the enterprise; an increase in the maturity of accounts receivable due to non-payments by customers, which reduces cash flow and leads to similar consequences; shortage of working capital of the enterprise, caused by the above problems, as well as other factors (for example, disruptions in the supply of material resources), as a result of which the enterprise is forced to reduce the volume of operating activities, the inability to use the latest technologies in the production of new products (due to their high cost against the backdrop of the undervalued exchange rate of the local currency) , outflow of intellectual personnel capable of implementing the use of new competitive projects (costs associated with non-implementation of CALS technologies).

In view of the above, as possible options for getting out of the current difficult situation, I would like to propose several measures to purposefully increase the profitability of enterprises (and it should be at least 30% to achieve a positive economic effect from their activities), increase their competitiveness, and not only in the local market, but also in the conditions of international trade:

First of all, mastering CALS technologies in production;

Introduction of international standards of the ISO series;

Providing the opportunity for enterprises to independently, without relying on communicated plans and recommendations, make strategic decisions, such as: distribution of net profit, investments, directions for their use, etc. In a market economy, in the presence of competition among producers for the sales market, the economic independence of enterprises is a natural and obligatory element of their activities. Among the most important fundamental principles here, it is important to note the principles of self-sufficiency and profitability;

Carrying out a policy of economic interest and economic responsibility at enterprises. The economic interest of enterprises is characterized by the net profit remaining at their disposal, the value of which depends not only on the amount of profit itself, but also on the taxation system and those deductions and fees that must be paid from the net profit;

Restructuring of enterprises through reengineering of business processes (comprehensive adjustment of the operating conditions of enterprises in accordance with changing market conditions and the developed development strategy, improvement of the management structure and financial and economic policy) with the eventual transition to a network management structure and increasing the innovative susceptibility of enterprises.

On a national scale, I would like to note the following conditions for economic development that have a direct impact on the successful development of enterprises in its environment:

Correctly set purchasing power parity exchange rate;

Complete absence of inflation/;

The monetization coefficient should be equal to 1;

The resource base of the banking system should be equal to GDP;

The volume of loans issued to the real sector must be equal to GDP, of which 70% must be long-term with a bank interest from 0.15% to 2.5%;

An institutional, legal and tax sphere must be created that would not have a depressing effect on the productive forces of the state;

Government protectionist policies should be aimed at ensuring that more than 50% of the production of goods and services is of more than 100% value added.

Thus, the proposed options are tools for solving the problem of increasing the profitability of enterprises, their profits and economic well-being, which in itself will have a positive impact on the economy of the entire state as a whole, being its integral part.

Literature

Shcherbina A.V. Finance of organizations: Textbook - M.: "Higher Education", 2005. - 506 p.

Kobenko A. How to balance the budget // Financial Director. – 2004. – No. 9. – p. 6 – 11.

Pelikh S.A. Problems of monetary relations. Collection of scientific papers. /S.A. Pelikh; Academy of Management under the President of the Republic of Belarus. – Mn.: Law and Economics, 2007. – 205 p.

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An equally important factor is determining the basis for calculating remuneration for sales department managers, which is determined based on an analysis of their work pattern. Options for linking the payment of managers through coefficients with both BDDS and BDR items stimulate either the receipt of funds or the fact of sale with the formation of income.

The basis for calculating manager's remuneration may be:

Revenues from sales.

Margin– the difference between sales revenue and costs of purchasing goods.

Sales proceeds.

Cash flow– the difference between the receipts of funds from sales and the amount of funds allocated for the purchase of goods.

It should also be noted that it is important not only to introduce one or another incentive base, but it must be associated with the manager’s ability to actively influence its value. If managers cannot influence the receipt of funds for shipped products, then the size of the bonus is calculated only as a percentage of revenue. Or, if managers can influence purchase prices and the value of trade margins, then the basis for calculating the amount of the bonus should be not revenue, but margin, etc.

If the coefficients are tied to the sales plan (and, accordingly, to the BDR items), then the facts of sales with the generation of income are stimulated, and managers will be interested in monitoring shipments to customers and monitoring the execution of documents (transfer and acceptance certificates, settlement and shipping documents (invoices, invoices).

If the coefficients are tied to payment (and to BDDS items), then the receipt of funds is stimulated, and managers will be interested in monitoring settlements with customers - monitoring the receipt of funds and overdue payments.

Ultimately, what should be encouraged more is the firm's policy, which should be selected through the above ratios.

Thus, with the introduction of budgeting, sales managers become the main players in inventory management, whose activities begin to be assessed by deviations from the sales plan “in terms of assortment.” On the one hand, this increases the direct motivation of these managers, which ensures a high probability of fulfilling the plan; on the other hand, the choice of parameters for assessing the activities of managers becomes important in order to direct it in accordance with the interests of the entire company.

but on an advance payment basis, or with deferred payment, but at a higher price. Financiers solve a similar dilemma when planning the company’s activities as a whole: to focus the company’s budget on achieving maximum profitability or to strive to increase cash flows and liquidity. As practice shows, it is possible to balance various financial indicators and draw up a budget that satisfies all the requirements of the management and owners of the company.

Drawing up a balanced budget is the process of finding the optimal balance between various financial indicators. You can manage these financial indicators by changing the characteristics of operating budgets. At the same time, you cannot focus only on the profitability indicator or only on the amount of cash flow: the first threatens the enterprise with cash gaps and a constant cash shortage, the second - the lack of real profit despite the apparent presence of free cash.

Any financial decision in one way or another affects liquidity and profitability. Let's consider the criteria that you need to focus on when balancing financial indicators, as well as the tools for this balancing.

An ideal company financial plan should have the following characteristics:

Non-deficit cash flow budget. Receipts cover all payments, including investment payments, and repayment of previously assumed obligations (credits and borrowings), and also provide a liquidity reserve (to cover unplanned payments and in case of unforeseen delays in receipts);

Return on equity satisfies the requirements set by business owners;

Other financial indicators correspond to the company's goals. It is also necessary to take into account that the owners may sacrifice the profit and liquidity of the company for a certain period to occupy a free niche in the market and introduce new products.

When forming a financial plan, the company should not make decisions to the detriment of product quality, customer and staff satisfaction.

Unfortunately, in practice it is very difficult to create a budget that would meet the above requirements. As a rule, the first version of a financial plan satisfies some criteria and does not meet others. In this case, budget balancing is required. In this case, you need to focus primarily on the target indicators that are set by the owners of the company, achieving acceptable values ​​for other indicators. You also need to take into account the company's approved strategy.

The main tools for balancing financial indicators are the cash flow budget, compiled by the indirect method, and the Du Pont chart.

Cash flow budget. The indirect method of preparing a cash flow statement is well known to any financier. However, for planning and budgeting, many companies prefer to use the direct method. At the same time, the experience of leading German companies shows that a cash flow budget compiled by the indirect method can serve as a good tool for balancing financial indicators. This form allows you to link the company’s profit and cash flows and quickly assess how a particular management decision will affect the company’s profit and cash flow dynamics

Balancing is carried out according to the following algorithm:

A budget is drawn up based on basic conditions (with the most realistic sales volume and standard terms of settlements with customers) and profits and cash flows are calculated.

The terms of settlements with counterparties (customers and suppliers) are analyzed and various options for delivery and loading conditions are calculated (price - discount - prepayment), from which the most effective is selected.

A balanced budget is approved.

A new credit policy of the company is approved, corresponding to the approved budget. All contracts with counterparties must be concluded on the basis of this document.

The terms of settlements with counterparties (prices for raw materials and products, payment terms) are mainly a tool for building long-term relationships with buyers and suppliers, and not for optimizing the budget. In addition, one of the basic principles of the relationship between an enterprise and its customers and suppliers is the stability of these relationships. Therefore, changing the terms of delivery and shipment in order to achieve the desired budget indicators is not always justified.

Du Pont diagram. The Du Pont diagram was developed and put into practice for the first time at the chemical company Du Pont de Nemours. Using this tool, you can balance the profit and loss budget and the company's forecast balance sheet (see figure).

To calculate profits, we use the “ROI tree”, or the Du Pont model, and the essentially similar “cash flow tree”. Then we change the influencing factors in the constructed models and analyze the results obtained. We also conduct sensitivity analysis, which allows us to assess the degree of influence of a factor on the result and more accurately carry out balancing.

When planning a company's activities, all financiers are faced with a dilemma: to focus the enterprise's budget on achieving maximum profitability or to strive to increase cash flows and liquidity. As practice shows, it is possible to balance various financial indicators and prepare a budget that meets all the requirements of the management and owners of the enterprise. Now let's talk more about balancing the budget.

Compilation balanced budget is the process of finding the optimal relationship between various financial indicators. You can manage these financial indicators by changing the characteristics of operating budgets. At the same time, you cannot focus only on the profitability indicator or only on the amount of cash flow: the first threatens the enterprise with cash gaps and a constant cash shortage, the second - the lack of real profit despite the apparent presence of free cash.

Any financial decision in one way or another affects liquidity and profitability. Let's consider the criteria that you need to focus on when balancing the budget, as well as the tools for this balancing.

Budget Balancing Criteria

An ideal company financial plan should have the following characteristics:

• non-deficit cash flow budget. Receipts cover all payments, including investment payments, repayment of previously assumed obligations (credits and borrowings), and also provide a liquidity reserve (to cover unplanned payments and in case of unforeseen delays in receipts);
• return on equity satisfies the requirements of business owners;
• other financial indicators correspond to the company's goals.

When forming a financial plan, the company should not make decisions to the detriment of product quality, customer and staff satisfaction.

Unfortunately, in practice it is very difficult to create a budget that would meet the above requirements. As a rule, the first version of a financial plan satisfies some criteria and does not meet others. In this case, budget balancing is required. In this case, you need to focus primarily on the target indicators that are set by the owners of the company, achieving acceptable values ​​for other indicators. You also need to take into account the company's approved strategy.

Budget Balancing Tools

The main tools for balancing the budget are the cash flow budget, compiled by the indirect method, and the Du Pont chart.

The indirect method of preparing a cash flow statement is well known to any financier. However, for planning and budgeting, many companies prefer to use the direct method. At the same time, the experience of leading companies shows that a cash flow budget compiled by the indirect method can serve as a good tool for balancing financial indicators. This form allows you to link the company’s profit and cash flows and quickly assess how a particular management decision will affect the company’s profit and cash flow dynamics.

Budget balancing is carried out according to the following algorithm.

1. A budget is drawn up based on basic conditions (with the most realistic sales volume and standard terms of settlements with customers) and profits and cash flows are calculated.
2. The terms of settlements with counterparties (customers and suppliers) are analyzed and various options for delivery and loading conditions (price - discount - prepayment) are calculated, from which the most effective one is selected.
3. A balanced budget is approved.
4. A new credit policy of the company is adopted, corresponding to the approved budget. All contracts with counterparties must be concluded on the basis of this document.

Another way to balance the profit and loss budget and the company's forecast balance sheet is by using Du Pont charts. The technique is similar to the modified cash flow budget approach, but is more visual. If the owners are not satisfied with the return on assets included in the initial budget, it is easy to determine from the diagram whether a decrease or increase in which budget items will contribute to an increase in profitability.

How can a financial director build a budgeting system so that the layout of budgets takes no more than a month, and the result suits everyone?

In practice, drawing up a budget in a large company for the coming year can take from three to four months, and in the worst case, up to six months. In other words, planning has to begin even before the moment when the company can sum up the results of the year by drawing up at least preliminary financial or management reporting. It is clear that the reliability of such plans leaves much to be desired, and serious adjustments have to be made at the very beginning of the year.

There are several reasons for such a long period of time for compiling company budgets.

The first place is consistently occupied by an incorrectly structured budget management system. Unified budget forms for departments have not been developed, deadlines for filling them out and submitting them to the financial service are not indicated, there is no indication of responsible persons and sanctions for violating deadlines, etc.

The second common reason is the labor-intensive procedure of budget balancing and the accompanying large number of approval iterations. Let's give an example. The heads of departments in the company filled out the budget forms sent to them and returned them to the financiers. They, in turn, having formed the general budget of the company, found out that the results were unsatisfactory, and made their own adjustments and proposals for revising the budgets. After that, department heads practically re-make their plans for the year. And so on several more times.

Colleague's experience

“Our company has several dozen enterprises. Most often, we start creating a budget in August, and I recommend everyone to start early. After all, if you start, say, in October-November, and plan its defense for mid-December, this is absolutely unrealistic. Surely some unit will forget to send, some will do everything wrong.”

Colleague's experience Natalya Vikhreva, Financial Director of National Registration Company CJSC “Our budgeting is based on the bottom-up principle.” I send the departments prepared plans, which are adjusted in the financial service. In my opinion, when preparing a budget, a lot of time is spent on subsequent approval of budgets with the heads of functional departments. Since we have 14 divisions in the company, there are more than enough questions and adjustments on items.”

To solve these problems, it is necessary to optimize the budget management process itself, eliminating existing errors, and also develop criteria and a balancing procedure.

Test your budgeting system

To understand whether the budgeting system in your company is effective, answer the following questions:

• Are strategic targets linked to budgets?
• Are the persons responsible in the company's departments for execution of budgets indicated?
• Are actual results quickly compared with accepted plans?
• Are the results of budget execution analyzed by type of activity, department, product?
• Is there operational cash flow management linked to the annual cash flow budget?
• Does the remuneration of department heads depend on the results of budget execution?

If you answered “no” to at least one of the points, then the implementation of budget management in your company is either not completed, or serious mistakes were made during its implementation. In this case, budgeting will not lead the company to its intended goals, and the time and effort on its preparation will be wasted.

Five mistakes in budgeting

The reasons for ineffective budgeting may be structural “distortions” inherent in budgeting, or tactical mistakes that have crept into regulations. Without pretending to be complete, we will focus on several of the most significant errors that are most often encountered in the practice of companies.

Colleague's experience Svetlana Petrova, financial director of Pharmstandard OJSC

“To solve the problem with the timing of budget formation, two problems need to be solved. First, develop a very strict budgeting calendar. We have created one for both the holding as a whole and for each division. Secondly, create a balanced system for adjusting budget items. It is necessary to take into account many factors when deciding to reduce the costs initially stated by the department in the budget.”

1. One of the budgeting stages is skipped or performed formally.

Budgeting at an enterprise involves performing the following management cycle:

• Planning (formation of operational, financial and consolidated budgets);
• Control of budget execution;
• Analysis of deviations and making corrective decisions.

An attempt to omit one or another stage and “simplify” the budgeting process leads to the fact that the budgeting system, seemingly built at the enterprise, turns out to be inoperative or functions with serious malfunctions.

Solution: Indicate in the budget regulations the responsibilities, procedures and methods for each of the listed stages.

2. The generated budgets do not correspond to the strategic goals of the enterprise.

A mistake that occurs at the stage of goal setting is the company’s lack of a formalized strategy. Neglect of this first and, perhaps, the most important stage in the implementation of budgeting is motivated by the fact that “there is a strategy,” but it exists only in the form of “desires” in the heads of managers, and the vision of the company’s future varies greatly in the views of those among the top management. Middle management, and even more so ordinary employees, know nothing about strategy. The lack of a clearly formulated strategy and the resulting uncertainty of financial goals leads to the fact that budgeting is deprived of its basis. At the same time, all the attributes of regular management - the financial structure, the motivation system, the principles of management accounting - seem to hang in the air, since there is no answer to the fundamental question “why”. Neither fulfilling nor exceeding the budget in this case does not mean achieving goals. No one in the company can reasonably say whether the use of the budget benefited the company or, on the contrary, worsened the business situation. It must be emphasized that the meaning of activity is determined precisely at the level of strategy. Good performance at the operational level does not guarantee good results.

Solution: Formalize the company’s development strategy for at least a five-year period. Clearly define strategic goals and digitize them. For example, a goal defined as “Gain a leading position in the market” cannot be taken into account when developing a budget. It needs to be specified. The correct option may sound like this: “Get a leading position in the market. Sales volume by 2011 should be at least $300 million.” Similarly, a specific goal can be broken down by year and taken into account when creating budgets.

3. The boundaries and types of financial responsibility centers are incorrectly designated

Since the financial structure is the starting point of budgeting, inaccuracies made during its formation will result in serious problems for the company. The consequences of such inaccuracies may be the emergence of areas of “cross” responsibility, the appointment of managers responsible for the execution of budget items beyond their control, etc.

Solution: When forming a financial structure and determining the types of financial responsibility centers (cost center, income center, profit center, etc.), first of all, you should understand what indicators can be influenced by a particular division. A common mistake is that the sales department is considered a profit center, which in most cases is not true, since the department is primarily responsible for the company's income.

4. There are no adequate long-term forecasts

A fairly common mistake made by companies at the planning stage is using short-term financial indicators as the main guideline when drawing up budgets (for example, the budget is built only taking into account already concluded contracts). This approach limits the use of budgeting and can lead to incorrect conclusions. But whether such actions will provide an opportunity to maintain profits in the future is unknown. With certain actions, customer loyalty may decrease, which in the future will lead to customer churn and ultimately to a decrease in profits.

The next mistake made when planning is to neglect options for the development of a market, production or other situation. This results in the company being given a single budget option. If events begin to develop differently than planned, the company loses control and is forced to make an unprepared decision.

Solution: Effective budget management involves drawing up an activity plan in several options. As a rule, this is an optimistic, pessimistic and most realistic scenario for the development of events. Only in this case can the company quickly respond to changing operating conditions.

5. Fragmented budgeting

The lack of any budgets, which can be due to various reasons, can lead to serious problems. Thus, if the budget system is limited only by the budget of income and expenses, then the enterprise’s need for funds to support its activities remains in the shadows. If you have a cash flow budget, but lack a balance sheet, it is not always possible to know whether the company can bear the credit burden and whether it is attractive as a borrower.

Solution: Regardless of the size of the company, it is necessary to create a complete set of financial (budget of income and expenses, forecast balance, cash flow budget) and operating budgets. At the same time, the cash flow budget for the next month should be drawn up with detail by week and day.

Balanced Budget

The budget process regulations should include a section that streamlines the work of consolidating data from different departments. This is a complex, iterative, step-by-step process. Representatives from multiple departments and at least two levels of management must balance the final budget targets. In other words, it is necessary to exclude the possibility, for example, that the company’s formed budget provides maximum profitability, but there are serious cash gaps in cash flow that the company cannot cover through the use of external sources. Or the exact opposite situation arises. Profitability is extremely low, since the company plans to switch to prepayment from customers and reduces prices, but in each forecast period there is a positive net cash flow.

Colleague's experience Natalya Vikhreva, CJSC National Registration Company

“To avoid problems with liquidity, we create a cash flow budget. If there is an excess of money, it is directed to investment projects implemented by the company. If there is a shortage, sources of raising funds are planned. This balances cash flow.

The company's final planned profitability is classified as a strategic indicator. And here the budget must be balanced to ensure that the planned profitability meets the strategic goals. In other words, if a company has a strategy that dictates requirements for profitability, then when drawing up a budget for the future period, we must first assess how close we are to achieving strategic goals. If this does not happen, then you have to cut costs.

Colleague's experience Svetlana Petrova, Pharmstandard OJSC

“The company has a long-term model of organic business development. It is its calculated parameters that serve as guidelines for balancing budgets. In addition to the profit and EBITDA indicators, standard indicators of the turnover of receivables and payables, inventories will also be borderline when budgeting; working capital, sufficient equity and the need for borrowed funds are also analyzed.”

The requirements that a company's budget must satisfy primarily depend on the strategic goals of the business. If we are talking about a growing business, it would be unreasonable to hope for high profits and the absence of cash gaps, while the company is actively conquering the market by reducing prices and absorbing competitors.

In order to minimize the time required for layout and balancing of the budget according to specified criteria (goals), a number of steps can be recommended.

1. STEP 1. Develop key indicators for departments. For example, for the sales department, the indicators may be the following: accounts receivable turnover and profitability of sales. Let’s assume that the accounts receivable turnover should not exceed five days, and in a standard agreement the maximum deferment of payment is 10 days. This means that already at the stage of planning the work of his division, the commercial director must review the terms of payment in the standard contract for the next year and, taking this into account, draw up a sales plan.
2. STEP 2. Create a mathematical model, reflecting the relationship of key budget items. The basis for creating a model can be the cash flow budget compiled by the indirect method, or the DuPont model (see diagram). The cash flow budget reflects the relationship between the company's profit and cash flow, and DuPont reflects the forecast balance and budget of income and expenses. The use of one or another model will allow the financial director, by varying various operational indicators of the company’s activities, to track changes in other budget items and create an optimal budget option that suits everyone.

Colleague's experience Andrey Elmenov, financial director of Makskom Electro company

“Our company uses a combined technology for budget formation. First, a business plan for a retail chain is drawn up, which contains detailed information about how much the chain should earn. The network includes several regional enterprises, among which, depending on the current situation, tasks are distributed to ensure the planned revenue. In other words, the total amount of revenue per network is divided by region. Plus, enterprises form the cost part of the budget, that is, they determine what costs will be needed to achieve the required revenue targets. This is the bottom-up part of the budget process.

Once all the data is collected, we analyze how our budget matches the strategy. And this is where budget revisions begin. Basically, planned costs are adjusted.

In addition, I use the DuPont model for balancing. It clearly shows what qualitative parameters need to be changed in the operation of enterprises in order to ensure the required level of financial stability or profitability. Once certain adjustments to operating conditions have been modeled using the DuPont methodology, we adjust budgets accordingly.”

The proposed methods for adjusting the budget at the layout stage will not save the company from re-approving changed operating budgets with department heads. However, this approach will significantly reduce their number and, as a result, reduce the time for preparing the final budget.

It’s worth mentioning right away that it’s not always possible to vary the indicators that affect the final budget. The vast majority of them can be changed only within a certain interval. For example, when revising payment terms for customers, the company will be forced to take into account market conditions. For example, if the market average for deferred payment among competitors is 3 - 5 days, this will be the range of acceptable values ​​when balancing the budget according to the “deferred payment” indicator.

Example

At the end of 2006, the Sweet Life company was finalizing the development of the budget for the next year, 2007. The company supplies confectionery products to retail chains. Its suppliers are regional enterprises that do not have their own experience working with networks.

As budget approval was nearing completion, the commercial director brought bad news. Prices for suppliers' products will most likely increase not by 7 percent, as planned, but by no less than 15-20%. Obviously, such a price increase will not be possible in retail chains. Therefore, it is necessary to consider unfavorable scenarios as the most likely and provide for possible actions.

The situation is complicated by the fact that the company, squeezed between retail chains and suppliers, already operates with minimal profitability. The company faced the full threat of losses. Indeed, calculation of the financial result for the scenario under consideration showed that the loss at the end of the year could range from 23 to 35 million rubles.

During an intensive search for a solution to the problem, the management team considered several different avenues to resolve the situation. Losses can be avoided by moving in three directions: reducing overhead costs, increasing trade turnover, or increasing margins (the difference between revenue and variable costs). However, reducing overhead costs will not have much effect, and in the long term may lead to a loss in business development rates. An increase in turnover is possible, but not to such an extent as to cover the expected losses. This became clear after calculating the payback point. Losses are decreasing, but it will not be possible to completely cover them with realistically achievable sales volumes. Margins have a radical impact on profits. Each percent of its increase increases profits by 11%. But how can you achieve higher margins? The most effective way is to reduce the cost of purchased products. It is clear that in order to influence the cost, you need to have your own production. But we are a trading company! The acquisition of production capacity is a serious investment and new risks. However, the situation forces us to take extraordinary actions, since inaction carries no less risks.

After studying the possibilities of acquiring a regional confectionery factory and analyzing the financial model, the company’s management came to the conclusion that if the company replaces third-party goods in circulation with its own products, the company will increase profitability so much that it will be able to recoup the investment within two years. Thus, the process of planning and analyzing budgets led the company to strategic decisions that radically changed the face of the business.

Now, summing up the preliminary results of 2007, we can already conclude that the decisions made were justified. Despite the fact that relations with retail chains and suppliers developed according to the worst-case scenario, the losses incurred in the first half of the year were repaid in the third quarter by increasing production volumes of our own confectionery factory, acquired at the beginning of the year. An analysis of budgets shows that the company will end the current year with a profit.

Keep your budgeting process on track

Even if budget management in a company has been functioning for several years, it, like any system, must be maintained in working order. To do this, it is necessary, along with an analysis of the budget execution of the outgoing year and on the eve of the new financial year, to carry out corrective measures.

Updating the company's strategic, tactical and financial goals. A company's strategic goals can completely change in five to seven years. The only thing that remains unchanged throughout the life of a company is its mission, values ​​and business principles. To achieve balance among all components of the business, the company must link strategy, development plans and financial policies on an annual basis. And if the company’s strategic goals have changed, this must be taken into account in the budgets being formed.

Adjustment of financial structure. Any business changes dynamically. The structure that was effective in solving the problems of yesterday may hinder business development today. Organizational and financial structures should provide not formal, but real management, allowing one to respond to changes related to the implementation of the company's strategic and tactical goals. Therefore, all significant business changes must be reflected in the organizational and financial structures.

Clarification of budgets and the relevance of their distribution among responsibility centers. The logic of the budgeting process implies that, following changes in the financial structure, the composition and structure of budgets must be clarified, and their subordination to the centers of financial responsibility and the degree of detail of data must be updated. For example, if a company decides next year to control not only production costs as a whole, but also their components, then the “Production Costs Budget” should be detailed to the “Material Costs Budget”, “Energy Costs Budget”, “Production Depreciation Budget”, etc. .d. Or, for example, a company has implemented project management, and now management is interested in understanding the structure of income and expenses by project. To do this, the budget must be enriched with one more dimension - the project dimension, according to which accounting, control and analytics will be maintained.

Updating the system of standards and restrictions.. Standards (for example, consumption rates, labor productivity, etc.) should be determined on the basis of historical data, but taking into account conditions predicted for the future. In other words, the approval of a new budget for the year must be preceded by a revision of standards. This is often forgotten when using standards established during the Soviet Union.

In addition to standards, companies also use restrictions in their budgeting system. Thus, restrictions may be introduced for the sales department, for example, on the size of accounts receivable. For the purchasing department, an important constraint is the maximum inventory balance. There may also be restrictions on departmental payments, expenses, minimum profitability standards, etc. Their meaning also needs to be regularly updated taking into account changing conditions.

Checking the motivation system. It is important that every employee of the company is motivated to fulfill and improve the budget indicators that depend on him. The motivational system remains relevant for no more than two years, so it should be checked for strength every six months and changes made if necessary.

Audit of budget management procedures. Two types of documents regulate the budget management process. “Budgeting Regulations” describes the result of the budget process and its stages. The Budgeting Regulations contain procedures that should lead to this result. Adjustments to these documents should be carried out in the event of any changes in the process of budget planning, their implementation and control.

Keywords: financial director, budgeting

The main tools for balancing financial indicators are the cash flow budget, compiled by the indirect method, and the Du Pont chart.

Cash flow budget. The indirect method of preparing a cash flow statement is well known to any financier. However, for planning and budgeting, many companies prefer to use the direct method. At the same time, the experience of leading German companies shows that a cash flow budget compiled by the indirect method can serve as a good tool for balancing financial indicators. This form allows you to link the company’s profit and cash flows and quickly assess how a particular management decision will affect the company’s profit and cash flow dynamics

Balancing is carried out according to the following algorithm:

A budget is drawn up based on basic conditions (with the most realistic sales volume and standard terms of settlements with customers) and profits and cash flows are calculated.

The terms of settlements with counterparties (customers and suppliers) are analyzed and various options for delivery and loading conditions are calculated (price - discount - prepayment), from which the most effective is selected.

A balanced budget is approved.

A new credit policy of the company is approved, corresponding to the approved budget. All contracts with counterparties must be concluded on the basis of this document.

The terms of settlements with counterparties (prices for raw materials and products, payment terms) are mainly a tool for building long-term relationships with buyers and suppliers, and not for optimizing the budget. In addition, one of the basic principles of the relationship between an enterprise and its customers and suppliers is the stability of these relationships. Therefore, changing the terms of delivery and shipment in order to achieve the desired budget indicators is not always justified.

Du Pont diagram. The Du Pont diagram was developed and put into practice for the first time at the chemical company Du Pont de Nemours. Using this tool, you can balance the profit and loss budget and the company's forecast balance sheet (see figure).

To calculate profits, we use the “ROI tree”, or the Du Pont model, and the essentially similar “cash flow tree”. Then we change the influencing factors in the constructed models and analyze the results obtained. We also conduct sensitivity analysis, which allows us to assess the degree of influence of a factor on the result and more accurately carry out balancing.

Du Pont balancing is similar to the modified cash flow budget approach, but with greater clarity. If the owners are not satisfied with the return on assets included in the initial budget, it is easy to determine from the diagram whether a decrease or increase in which budget items will contribute to an increase in profitability.