How IT Managers Can Create A Financial Budget

Image Credit It's going to take capital to allow your IT team to be successful this year
It's going to take capital to allow your IT team to be successful this year

How much money will be actually allocated to your IT team really comes down to how much money the company’s finance department is willing to give you. This amount will be determined when they create a financial budget that includes your team. Considering how important this budget is to your annual funding, it sure seems as though you should know how a financial budget is put together…

Types Of Budgets

Even though you might not be creating a financial budget, you will still be greatly affected by it. This means that you need to know exactly how this type of budget gets created.

What happens first is that the IT manager creates an operating budget for his or her team. Once that’s done, three additional budgets are then created:

  • Cash Budget: this budget predicts and plans for the timing of cash inflows and outflows.
  • Operating Asset Investment Plan: this budget determines when the company is going to be able to have enough capital available to purchasing assets such as inventory and accounts receivable.
  • Capital Investment Plan: this budget guides the company in making its investments in long-term productive assets such as property, plant, and equipment.

How A Cash Budget Is Built

The most important of these three budgets from an IT manager’s point-of-view is the cash budget. It supports the planning for the near-term. This is the budget that will tell the company if they are going to have a shortage or a surplus of cash on a month-by-month basis. In other words, will the company be able to pay its bills?

Because the company’s cash budget will impact how much money the company will have to fund your IT team, how the cash budget is created is very important to you. Here are the steps that the company will go through in order to create its cash budget:

  1. Add Receipts: Determine how much cash will be flowing into the company during the period. This can come from many different sources including customers as well as other sources.
  2. Deduct Disbursements: Calculate how much cash will need to be paid out during the period. This can include such items as payroll and taxes.
  3. Calculate The Cash Surplus / Deficiency: Subtract the disbursements from the receipts in order to determine how much cash the company will have left over.
  4. Add The Beginning Cash Balance: Add in the ending cash balance from the last period of the cash budget. This will now provide you with a new ending balance.
  5. Determine If Any Financing Is Needed: The ending balance will either be positive or negative. If it is positive, then the company has enough cash to cover all of its operations including funding your IT team. If it is negative, then the company will need to create a plan to finance the shortfall from other sources.

What All Of This Means For You

One of your key responsibilities as an IT manager is to make sure that your IT dream team has the funding that they will need in order to complete the projects that have been assigned to them for the year. The company’s financial budget is going to control how much funding your team gets. This means that you are going to have to show some leadership and find out how this budget is actually created.

The financial budget actually consists of three separate budgets: a cash budget, an operating asset budget, and a capital investment budget. The most important of these is the cash budget which determines how the company will pay its bills. We covered how a cash budget is built and this will have an impact on how much funding will be available for your team.

Even though IT managers won’t actually be responsible for creating the company’s financial budget, you will still be impacted by it. Make sure that you understand both when the company creates this plan and how your management goes about doing it. The end result will affect not only you, but also your IT team.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Management Skills™

Question For You: What do you think the best way for an IT manager to get involved in the financial budget creation process would be?

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What We’ll Be Talking About Next Time

Wouldn’t it be great if there was some magic machinery somewhere that we could all go to, push a big red button, and then your team’s budget for the year would pop out. As wonderful as this would be, such a machine does not exist. This means that the process of creating a budget involves real human beings. This means that things are going to get messy…

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