How to prepare budget for Companies whatever their industry is

  •  Determine budget elements and Understand how the budgets elements are fitted based on industry which Company run in.
  •  Understand what is the purpose of the budget
  • Constructing budget form or template
  • How to prepare the budget?
  • Understand how to link the budget into control systems and management performance

 

Determine budgets elements and how are fitted.

To know what is the budget elements of any Companies, the easy way is to look at their Financial Statements (Income statement, balance sheet and cash flow statements), to identify the types of functional budget and what is the breakdown of cost and revenue causes and cost/revenue drivers. Let’s take The budget of Petroleum Exploration and Production Companies. If we take the financial statements of those Companies, we will see the below breakdown (Revenue and Cost Elements)

The breakdown of income statements of oil and gas companies are majorly as follow

-          Revenue

o   Crude Oil Sales

o   Condensate oil sales

o   Gas Sales

-          Cost of Sales

o   Royalties and Levies

o   Operation Staff Cost (Pumper wages, Junior workers, Senior workers and managers wages, roustabout gang wages)

o   Operation Materials and consumables Cost (Small tools, supplies, fuel and water)

o   Maintenance Cost (Tubing and Casing repair, equipment repair)

o   Other Operating cost (Wells-pulling, clean out, Communications and data transmission, Food and loging for personnel, Salt water disposal)

o   Pipline Tariffs

o   Operation portion of regional Office Expenses (Field Office Overhead)

o   DD&A of assets used for production

o   Marketing Expenses

-          Exploration costs Expensed

o   Exploratory drilling cost Written-off

o   G&G Cost

-          Impairment expenses

-          Corporate overhead

-          Financing Cost

-          Income Tax

-          Net Profit

The breakdown of balance sheet of oil and gas companies are majorly as follow

-          Assets

o   Cash and Cash Equivalent

o   Receivables (Trade, Joint venture and other debitors)

o   Inventories (Crude oil or gas inventories and drilling and operating materials inventories)

o   Exploration and Evaluation assets

§  Suspended capitalized exploratory drilling wells

§  Development costs

§  Acquisition costs

o   Other property, plant and equipments

-          Liabilities

o   Payables (Trade, joint venture and other creditors)

o   Loans

-          Equity

o   Retained Earnings

o   Common equity

o   Preferred equity

o   Reserves

After understanding and determining the elements of income statements and balance sheets of specific business. We should identify the budget flowchart system. In our Petroleum entity, the main budgets will be:

-          Functional Budget

o   Revenue Budget

o   Cost of Sales Budget

o   Production Budget

o   Sales & Marketing Budget

o   General & Administrative Budget

§  Overhead Budget

o   Labor & staffing Budgets

o   Purchasing Materials Budget

-          Research & Development Budget

o   Exploration Budget

o   Capital Budget

-          Cash Budget

-          Pro forma income statement

-          Pro forma balance sheet

-          Cash flow forecast