Budget planning: foundation for financial stability and growth in the company

Budget planning is a central element of corporate management and is used to enable financial stability as well as targeted growth strategies. It includes the systematic recording and allocation of all financial resources within a company. A budget, understood as a plan of all expected income and expenses, helps ensure that funds are used efficiently.

In Switzerland, budget planning is particularly relevant for small and medium-sized enterprises (SMEs), as the Swiss identification number plays a central role in tax processes such as VAT accounting. SMEs often have to react flexibly to market changes, which makes well-thought-out budget planning all the more important. A budget plan is more than just the allocation of financial resources; it also takes into account the availability of other resources such as personnel, machinery or production equipment.

Important aspects of budget planning:

• Time period: Planning is usually carried out for a financial year, but can also cover shorter periods (quarters).
• Resource allocation: Budgeting involves not only money, but also the use of human and material resources.
• Planning effort: The process can be time-consuming, as many departments need to be involved to ensure complete and precise planning.

Budgeting is often carried out in close cooperation with accounting and controlling to ensure comprehensive transparency of the cash flow within the company. This not only maintains liquidity, but also increases the financial leeway for investments.

Types of budget planning

Budget planning can be divided into three main categories depending on the time horizon and objectives: operational, tactical and strategic budget planning. Each of these categories fulfils specific functions and helps companies achieve both short-term and long-term goals.

Operational budget planning

Operational budget planning relates to short-term planning, typically over a period of one year, and forms the basis for day-to-day business operations. The focus here is on the detailed allocation of resources to ensure the smooth running of the current financial year.

Key characteristics of operational budget planning:

• Time horizon: 1 year (often in line with the financial year)
• Level of detail: High precision in the allocation of resources and funds
• Objectives: Ensuring that operational processes run efficiently and that ongoing costs are covered
• Examples: Defining the annual marketing budget, allocating personnel costs, planning operating resources

This type of budget planning is crucial for securing short-term liquidity and ensuring that all tax obligations, such as VAT accounting, are correctly fulfilled.

Tactical budget planning

Tactical budget planning covers a medium-term period, typically between one and five years. It forms a bridge between short-term operational planning and the company’s long-term strategic orientation.

Key characteristics of tactical budget planning:

• Time horizon: 1 to 5 years
• Objectives: Adapting to market changes and providing flexibility for unexpected developments
• Focus: Optimising costs and resources over several years in order to achieve medium-term goals
• Examples: Introduction of new products, expansion into new markets, optimisation of production capacities

This planning level enables companies to prepare for medium-term projects and initiatives that go beyond day-to-day business, without losing sight of long-term corporate goals.

Strategic budget planning

Strategic budget planning looks far into the future and covers a period of five to ten years. It is closely linked to the company’s long-term goals and overall strategy and aims to prepare the company for future challenges and opportunities.

Key characteristics of strategic budget planning:

• Time horizon: 5 to 10 years
• Objectives: Securing the company’s long-term success and competitiveness
• Focus: Long-term investments, development of new business areas, strategic partnerships
• Examples: Investments in new technologies, development of new business units, long-term personnel planning

Long-term budget planning can also help identify risks such as over-indebtedness or capital loss at an early stage and take appropriate action. It provides stability and enables sustainable growth to be promoted.

Methods of budget planning

In addition to the different types of budget planning, there are also various methods that a company can use to create its budgets. Each method offers specific advantages and disadvantages, depending on the needs and structures of the company. The four most common methods are top-down planning, bottom-up planning, the countercurrent procedure and zero-based budgeting.

Top-down planning

Top-down planning, also known as retrograde budgeting, is a method in which management defines the budget and passes the specifications on to the lower levels. Management determines the total budget and distributes it among the individual departments or areas.

Advantages of top-down planning:

• Efficiency: Decisions can be made quickly as few people are involved.
• Cost savings: Fewer planning resources are needed, as planning is centralised at higher management levels.
• Strategic alignment: The budget is closely linked to the company’s overarching objectives.

Disadvantages of top-down planning:

• Lower employee participation: The expertise of employees in operational areas is often not sufficiently taken into account.
• Limited flexibility: As the budget is specified from the top, departments have little leeway to address specific needs.
• Information gaps: Budget planning can be inaccurate because central decision-makers may not know all the details from the operational areas.

Bottom-up planning

The exact opposite of the top-down method is bottom-up planning, also called progressive budgeting. With this method, budget planning starts at the operational level, where departments determine their respective budget requirements. These are then gradually passed upwards and consolidated into an overall budget.

Advantages of bottom-up planning:

• Employee participation: The expertise of employees who are close to day-to-day business is intensively used.
• Level of detail: As budget requirements are determined by the operational units, planning is often very precise.
• Flexibility: Departments can set their own priorities and respond flexibly to requirements.

Disadvantages of bottom-up planning:

• Laborious process: Planning can be time-consuming and resource-intensive, as many levels are involved.
• Coordination effort: Conflicts can arise between departments, as their budget requirements do not always align with the company’s overall strategy.
• Risk of undesirable developments: If departments plan their budgets without an overarching goal, the overall plan may deviate from the company’s strategic course.

Countercurrent procedure

The countercurrent procedure attempts to combine the advantages of top-down and bottom-up planning. It begins with preliminary top-down planning, in which management specifies a framework. This framework is then reviewed and adjusted at lower levels and fed back to management, where the final decisions are made.

Advantages of the countercurrent procedure:

• Combination of advantages: It combines the strategic alignment of top-down planning with the level of detail and employee involvement of the bottom-up method.
• Adaptability: The plan can be reviewed and adjusted in several stages, ensuring flexibility and accuracy.

Disadvantages of the countercurrent procedure:

• High effort: The procedure is time-consuming, as it goes through several revision cycles.
• Risk of compromise solutions: Compromises may arise that do not fully meet either strategic or operational needs.

Zero-based budgeting

Zero-based budgeting differs fundamentally from the other methods because it creates the budget from scratch each year without building on the previous year’s figures. Each department must justify its planned expenditures, regardless of how much budget was available in the previous year.

Advantages of zero-based budgeting:

• Efficient use of resources: Only truly necessary expenses are approved, which can lead to cost savings.
• Flexibility: Planning is not tied to old structures and can respond dynamically to new requirements.
• Transparency: All expenses are reviewed and justified, creating a high level of transparency.

Disadvantages of zero-based budgeting:

• Time-consuming: As the budget is recreated every year, this requires a lot of time and planning.
• High demands on resources: The detailed review of all expenses requires large human and organisational capacities.
• Complexity: Especially in large companies, it can be difficult to rebuild the budget completely from scratch every year.

Practical tips and tools for the budget plan

Creating a budget plan with Excel

Excel is a widely used and easily accessible tool that is excellently suited for creating and managing budgets. It enables companies to create individual budget templates and perform complex calculations without having to use expensive software solutions. For Swiss companies, particularly SMEs, Excel offers a simple way to create and manage budgets thanks to its flexibility and cost efficiency.

Advantages of Excel in budget planning:

• Flexibility: Excel can be individually adapted to the specific needs of a company.
• Cost efficiency: No additional costs are incurred, as many companies already use Excel as part of their software solutions.
• Complexity: Excel allows complex calculations and visualisations, making it easier to make financial decisions.
• User-friendliness: Thanks to available templates and its intuitive operation, Excel is accessible and easy to use for many employees.

Budget planning with Analise Franci

In addition to Excel, Swiss companies can also use specialised software such as Analise Franci to make their budget planning efficient. This solution makes it possible to analyse financial data precisely and prepare it visually, which significantly simplifies decision-making. Especially in financial planning, Analise Franci offers high flexibility and adaptability, making it a valuable addition to classic spreadsheets. It supports companies in optimising their budget planning in a structured and data-based way.

Envelope method for budget planning

The envelope method is a simple but effective technique that is particularly suitable for smaller companies. The budget is divided into different categories and a specific amount of money is assigned to each category. The method ensures clear cost control, as only the money assigned to a specific category is used.

Steps for using the envelope method:

1. Determine the budget categories: Define the most important areas, e.g. personnel, operating resources, marketing and investments.
2. Assign amounts: A fixed amount is defined for each category, based on expectations and previous expenses.
3. Monitor expenditures: Each expense is matched with the respective “envelope” or budget category.
4. Make adjustments: If unexpected costs arise during the planning period, the budget can be adjusted flexibly.

In addition, Swiss companies should take the reverse charge procedure (input tax) into account in budget planning, especially for cross-border services, in order to avoid unexpected tax burdens. It is particularly suitable for companies that want to manage their budgeting in a simple, structured way.

Efficient approach to budget planning

Integrated planning

Budget planning should not be viewed in isolation. It must be integrated into the overall context of the company and take into account both operational and strategic considerations. Integrated planning means that all departments and levels of a company are involved in the process. This integrates not only financial aspects, but also human and material resources into the planning.

Steps for integrated planning:

1. Coordination of departments: Each department creates its own budget plan based on the company’s objectives.
2. Coordination: All departments coordinate their budgets with one another in order to exploit synergies and avoid duplication.
3. Review by management: Management reviews the submitted plans to ensure that they fit the overarching strategy.

Use of prior-year figures

A proven tool for budget planning is to draw on prior-year figures. This method provides companies with an indication of how expenses and income have developed and enables realistic forecasts for the coming planning period. Especially in stable market environments, it makes sense to rely on this historical data in order to identify deviations at an early stage.

Advantages of using prior-year figures:

• Realistic assessments: Historical data provide a solid basis for forecasts.
• Continuity: The company can build on proven budgets and adapt them.
• Avoidance of errors: Earlier planning errors can be avoided by drawing on past experience.

Following up with measures

Budget planning is not just a theoretical process, but requires consistent implementation. After the budget has been drawn up, measures must be initiated to ensure that the planned goals are achieved. Monitoring and adjusting the budget during the financial year are crucial in order to respond to changing market conditions or unforeseen developments.

Important steps for implementation:

1. Regular monitoring: Monitoring expenses and income in order to identify deviations at an early stage.
2. Adjustment of the budget: Flexibility in reallocating resources if necessary.
3. Feedback loops: Regular feedback from departments to improve the budgeting process.

Examples of budget plans

A well-structured budget plan is essential to ensure financial stability while seizing growth opportunities. Such a plan should include several sub-areas that cover a company’s specific expenses and income. Here is an example of how a typical budget plan for a Swiss company could be structured:

Investment plan

The investment plan includes all major planned investments for the coming year. These include, for example, the purchase of new machinery, the construction of production facilities or the introduction of new technologies. These investments are often long-term and are intended to secure the company’s competitiveness.

Example:

• Purchase of new machinery: CHF 500,000
• Expansion of production facilities: CHF 1,200,000
• Investment in new IT systems: CHF 300,000

Material plan

The material plan regulates the purchase of raw materials, goods and other materials required for production. For companies involved in the manufacture of products, precise planning of this budget is important to ensure that there is always sufficient material available without incurring excessive storage costs.

Example:

• Raw materials for production: CHF 800,000
• Consumables: CHF 150,000
• Goods for resale: CHF 400,000

Production plan

This part of the budget deals with the costs incurred for production itself. In addition to material costs, this also includes operating costs for machines, wages for production employees and energy costs.

Example:

• Wages of production employees: CHF 1,000,000
• Energy costs: CHF 200,000
• Maintenance of machinery: CHF 100,000

Sales plan

The sales plan defines which funds will be used for marketing, sales and the market launch of new products. This plan is particularly important for companies that want to launch new products or services on the market.

Example:

• Marketing costs: CHF 250,000
• Sales costs: CHF 150,000
• Launch costs for new products: CHF 100,000

Revenue plan

The revenue plan summarises the expected turnover to be generated from the sale of products or services during the planning period. This forecast is based on previous sales figures, market analyses and expected market trends.

Example:

• Sales of product A: CHF 2,000,000
• Sales of product B: CHF 1,500,000
• Sales of services: CHF 500,000

This detailed breakdown into various sub-plans ensures that all financially relevant areas are covered and taken into account in the budget plan. The close interlinking between the different plans creates transparency and enables better control over the company’s finances.

Careful and detailed budget planning is crucial for every company in order to ensure financial stability and be prepared for future challenges. By using appropriate methods and tools, the budget can be managed in a targeted manner and aligned with the company’s strategic objectives.