A master budget is a financial document that includes how much an organization plans to make and how much it plans to spend over a fiscal year. The master budget summarizes a planned operating budget, which details how much the organization projects for it’s income, and a financial budget, which details how much it plans to spend and on what.
This template is to provide insight into where the collective is heading from a financial perspective. It’s a framework for understanding revenue, profit, expenses, and debt load, and it shows how a collective is putting its capital to work. a.) Summary of Project Costs Be sure to include all project costs here (also called line items). This is going to be a high-level look at what you’re expecting things to cost and where the biggest chunks of the budget are going to be spent. Ideally, this section should outline everything listed below, direct and indirect costs, capital costs, etc., to give stakeholders a sense of what the finer points of the budget are going to look like. These are actual costs directly related to the project. Direct costs include expenditures like your project team costs, tools, supplies, labor costs, or material costs. Basically, everything you need to do the work itself. Indirect costs are costs you need to be aware of, but aren’t connected directly to the project. This doesn’t mean they shouldn't be considered, but they’re mostly things like utilities, building maintenance, security, and administrative costs, etc. In other words, they’re business costs, more than project costs. Odds are, capital costs aren’t going to be something you need to worry about if you’re working on projects like building software, but they can still exist in some projects, especially when you’re starting a new business. These are one-time expenses that typically come with things like purchasing land, buying company vehicles, or construction costs (if you happen to be working on a construction project). Operation costs are the expenses related to running your business. They’re not often going to be a factor when running a project, but can be grouped into indirect costs, since the business is still spending the money on them. f.) Project Delivery Costs Project delivery costs are how much money it takes to successfully deliver the project. This is typically where most of your time will be spent when budgeting because you’re putting together a summary of project delivery costs. g.) Project Management Costs Project management costs are similar to project delivery costs, but are more centered on how much it costs to manage everything. This is all the time and energy that goes into making sure everything runs smoothly, stays within budget, and happens on schedule. Master Budget Template Guide The master budget is the aggregation of all lower-level produced by a company's various functional areas, and also includes budgeted , a cash forecast, and a financing plan. The master budget is typically presented in either a monthly or quarterly format, and usually covers a company's entire . An explanatory text may be included with the master budget, which explains the company's strategic direction, how the master budget will assist in accomplishing specific goals, and the management actions needed to achieve the budget. There may also be a discussion of the headcount changes that are required to achieve the budget. A master budget is the central planning tool that a management team uses to direct the activities of a , as well as to judge the performance of its various . It is customary for the senior management team to review a number of iterations of the master budget and incorporate modifications until it arrives at a budget that allocates funds to achieve the desired results. Hopefully, a company uses to arrive at this final budget, but it may also be imposed on the organization by senior management, with little input from other employees. The budgets that roll up into the master budget include: The selling and administrative expense budget may be further subdivided into budgets for individual departments, such as the accounting, engineering, facilities, and marketing departments. Once the master budget has been finalized, the accounting staff may enter it into the company's accounting software, so that the software can issue financial reports comparing budgeted and actual results. Smaller organizations usually construct their master budgets using electronic spreadsheets. However, spreadsheets may contain formula errors, and also have a difficult time constructing a budgeted balance sheet. Larger organizations use budget-specific software, which does not have these two problems. Example of a Master Budget Many lower-level budgets have specific formats that are used to arrive at certain outcomes, such as the fully of the , or the number of units of products to be manufactured. This is not the case for the master budget, which looks very much like a standard set of financial statements. The and will be in the normal format mandated by or . The primary difference is the cash budget, which does not usually appear in the standard format of the . Instead, it serves the more practical purpose of identifying specific cash inflows and outflows that will result from the rest of the budget model. Here is an example of the cash budget: The most difficult item to estimate in the cash budget is the net change in from period to period. During periods of rapid growth, working capital can be a strongly negative number, since the company must invest in more than usual. If the amount of working capital appears to be holding steady despite rapid growth, then it is quite likely that management has built an unrealistic expectation into the budget to be able to collect accounts receivable more quickly than has been the case in the past. A similar problem can arise with , which is another component of working capital. It generally takes more inventory to support more , so the portion of working capital comprised of inventory can be expected to increase in conjunction with more sales. Thus, it is extremely likely that a company experiencing any amount of growth will forecast negative , because of the need to fund additional working capital. Other Master Budget Issues Another document sometimes included in the master budget is a set of that are calculated based on the information in the budget. For example, it may show , or , or . These metrics are useful for testing the validity of the budget model against actual results in the past. For example, if the accounts receivable turnover metric is much lower than historical results, that could mean that the company is over-estimating its ability to collect accounts receivable promptly, which means that the amount of accounts receivable shown in the balance sheet may be understated and the amount of cash may be overstated. Problems with the Master Budget When a company implements a master budget, there is a strong tendency for senior management to force the organization to closely adhere to it by including budget goals in employee compensation plans. Doing so has the following effects: When compiling the budget, employees tend to estimate low sales and high expenses, so that they can easily meet the budget and achieve their compensation plans. Forcing the organization to follow the budget requires a group of financial analysts who track down and report on variances from the plan. This adds unnecessary expense to the business. Managers tend to ignore new business opportunities, because all resources are already allocated toward attaining the budget, and their personal incentives are tied to the budget. Thus, enforcing a master budget can skew the operational performance of a business. Because of this problem, it may be better to employ the master budget as just a rough guideline for management's near-term expectations for the business. What is the Importance of Budgeting to Your Financial Plan? A financial plan is essentially a plan created towards achieving your short, medium and long-term financial goals, such as paying off debt, saving for travel, a new car, or buying a home. Once you’ve set your goals, budget planning helps you create a tracking system to understand where your money is going and identify areas where you can be more intentional or cut back on spending to allocate more towards these goals. In other words, a budget can help put that plan into action and turn your goals into reality! Benefits of Using a Budget Template Providing a Clearer Picture of Finances and Net Worth: Using a budget template requires you to track your personal or household budget, income and expenses, which can help you gain a better understanding of your financial situation. This increased awareness can help you make better financial decisions and avoid overspending. Provides insight into your spending habits: it forces you to pay attention to and take a close look at your spending habits. When reviewing your expenses, you may notice that you’re spending money on things you don’t need, such as subscriptions and other expenses. Budgeting allows you to rethink your spending habits and refocus on your financial goals. Helping to Prioritise Spending and Saving: A budget can help you to break things down into needs, wants and likes, or bills and discretionary spending. You can identify areas where you can cut back on spending and increase savings and set spending limits and allocate funds towards savings or debt payments. By knowing exactly how much money you have available and where it's going, you can better manage your money and avoid unnecessary expenses. Reducing Stress and Anxiety. Financial stress is a common issue for many people, which is often directly related to how out of control someone feels. A budget template can help you to take back control and reduce this stress. Paying bills on time, and improving your credit score. Using a budget tracker can help you to keep on top of your commitments and pay bills on time, you can maintain a healthy credit score. Helps you to make better decisions. A budget template can help you make better financial decisions by giving you a clear picture of your income and expenses. By having this information readily available, you can make informed decisions about spending and saving, and avoid making impulsive or unnecessary purchases. How to Choose a Budget Template When choosing a budget template, consider your personal preferences and needs. Some templates are more detailed than others, and some may include sections that aren't relevant to your situation. Look for a template that is easy to use and understand, and that includes categories for all of your expenses. When it comes to choosing a budget template, there are several factors to consider to ensure that you select the best option for your needs. Here are a few things to keep in mind when choosing a budget template: Format: Budget templates come in a variety of formats, including spreadsheets, apps, and printable PDFs. Choose a format that works for you. Features: Different budget templates offer different features, so consider what you need from a budget template. For example, some templates may include a debt tracker or savings goals and savings tracker sections, while others may not. Customisation: Some budget templates are highly customisable, allowing you to tailor them to your specific situation. Others may not allow for as much customisation. Consider how important customisation is to you. Ease of Use: You want a budget template that is easy to use and understand. Look for templates that are user-friendly and intuitive, so you can quickly and easily enter your income and expenses. Compatibility: If you plan to use a budgeting app or software, make sure the template you choose is compatible with the app or software you plan to use. Some apps have their own inbuilt templates. Cost: Some budget templates are free, while others may require a subscription or purchase. Consider whether you’re willing to pay for a budget template or you'd prefer a free option. Ultimately, the best budget template for you will depend on your individual needs and preferences. Take the time to explore different options and consider the factors above to choose a budget template that works best for you. Tips for Using a Budget Template Using a budget worksheet or budget template can be an effective way to manage your finances, but it's important to use it effectively to get the most out of it. Here are some tips to help you use a budget template well: Track Your Spending Accurately: This means entering all of your income and expenses into the templates. Be sure to check your spending on all your debit and credit cards to include even the small expenses. The more accurate your tracking is, the better your budget template will work for you. Be realistic: One rule of thumb is to underestimate your income and overestimate your expenses. Looking at your expenses accurately and being honest about what you are spending is important to creating a workable budget. Choose a time frame that works for you: Whether it’s a weekly budget, monthly budget or yearly budget, choose the appropriate time frame to support how you best like to work with and plan your finances. If you’re more motivated short-term, then it can be easier to focus on your weekly and monthly spending habits, than the whole year. Don’t: using a budget template can seem daunting - if you haven’t created a budget plan before, seeing your income and expenses realistically displayed in a spreadsheet can be quite a shock. Rather than judge how you spend your money, or your spending habits, shift your focus to using it as a tool to help guide future healthy spending habits and better financial behaviours. Set Realistic Goals: Setting realistic spending limits and savings goals is important to the success of your budgeting efforts. Use your budget template to set realistic goals for saving money, paying off debt, and reducing expenses. Avoid pushing too hard so you'll be more motivated to stick to your budget. Use a savings tracker: Whilst it’s important to track your expenses, it’s also important to track your savings. If you have money going to savings accounts on a weekly or monthly basis, keeping track of your savings is a good way to motivate yourself and monitor your progress towards your savings goals. Review Your Budget Regularly: Regular review will help you to stay on track. Your spending habits change often so it’s important to set aside time each week or month to review your budget and make any necessary adjustments to account for the changes in your life and spending habits. Be Flexible: Your budget template is a guide, not a set of strict rules. Be flexible and willing to adjust your budget as your circumstances change. Life happens, and unexpected expenses can arise, so be prepared to make changes as needed. Use Technology to Your Advantage: Use budgeting apps or software to help you track your spending and stay on track with your budget overview. Remember, budgeting is a process, and it takes time and effort to get it right. Be patient and stay committed, and you'll see the results over time. How to Prepare a Master Budget Lord’s firm helps venture-backed startups create financial plans and master budgets. He shared his process with The Hustle below. Lord says his first step is to clarify his client’s high-level goals for the year. Is the company, for example, trying to put VC dollars to work and grow quickly? Or does it need to be cash flow positive this year? You’ll budget differently depending on what you’re trying to do. Once these aims are clarified, have your CFO, or finance leader, meet with your department heads individually, and talk about their specific functional goals. These include goals around sales, product developments, growth rate, hiring, etc. The CFO should then ensure that department heads are aligned on each other's functional goals, and that all goals support the company’s main high-level direction for the year. If you don’t have a CFO and it’s just you and your buddy, make sure the two of you are on the same page about your priorities for the year. Once you set your missions, it’s time to figure out what it’s going to cost to meet your goals. Look at the resources your company has, figure out where the gaps are, and help suss out realistic budget numbers based on time and resource constraints. For example, in a perfect world, you might want to hire 20 engineers in January to meet your growth goal, but that’s probably not realistic, given how time-consuming and expensive hiring is. So you’ll need to negotiate with your head of engineering. “These conversations are where the budget starts to take shape,” Lord says. Once dollar amounts are associated with each individual budget item, get your company leaders together and have everybody sign off on the master budget. It’s important for everyone to commit to spending the amount agreed to. If, for example, you end up needing $50k more for marketing than you estimated, you should get it from somewhere else in your budget, rather than just spending it without reducing the number elsewhere. “That’s what really makes it a budget versus a spreadsheet — that spend discipline,” Lord says. A budget is not a “set it and forget it” type of document. It should be reviewed, assessed, and updated on (at least) a quarterly basis to see how things are going. Throughout the year, founders and financial leaders should be asking questions like: Are we spending what we committed to spending? Are we spending in the right places? Are we achieving our desired outcomes? Have our priorities changed? Do we need to allocate capital differently to meet our goals? Here are a couple examples of budgets you’d find inside a master budget (all numbers are hypothetical). Note: You’ll want to prepare your budgets in a master spreadsheet using sub-sheets for different budgets. 
Master Budget
