Budget Preparation SOP Template

1.Purpose

To produce an approved annual budget that reflects realistic department plans, ties to prior actuals and revenue forecasts, and is loaded into the accounting system for variance reporting.

2.Scope

Applies to the annual operating budget cycle across all departments. Mid-year forecast updates and capital budgeting for individual fixed asset purchases are covered by separate processes.

Definitions

Budget calendar

The schedule of deadlines and milestones for submitting, reviewing and approving the annual budget.

Variance report

A report comparing actual results to budget so managers can see where spending or revenue differs from plan.

3.Responsibilities

Department Manager

Submits their department's budget request with assumptions and justification.

Budget Analyst

Compiles department budgets, challenges assumptions and reconciles to prior actuals.

Controller

Reviews the compiled budget and presents it to executive leadership.

CFO

Reviews the revenue forecast, approves the final budget and communicates it to leadership.

RACI matrix

R = Responsible, A = Accountable, C = Consulted, I = Informed

4.Materials and PPE

Materials, tools and systems

• →Budget calendar
• →Budget submission template
• →Prior year actuals report
• →Revenue forecast
• →Budgeting or planning system
• →Variance reporting template

5.Procedure

1. 5.1

   Issue the budget calendar and instructions

   Budget Analyst

   The budget analyst distributes the budget calendar, submission template and instructions to all department managers, including key deadlines and assumptions to use.

2. 5.2

   Submit department budget requests

   Department Manager

   Each department manager completes the budget submission template with planned spending by category, headcount changes and the justification for significant increases.

3. 5.3

   Compile departmental submissions

   Budget Analyst

   The budget analyst compiles all department submissions into the consolidated budget model, flagging any missing or incomplete submission for follow-up.

   Checkpoint: Every department's submission is received and complete before the consolidated model is built.

4. 5.4

   Review and challenge assumptions

   Budget Analyst

   The budget analyst reviews each department's assumptions for reasonableness, questioning any significant increase or decrease from the prior year and requesting clarification.

5. 5.5

   Reconcile to prior year actuals

   Budget Analyst

   The budget analyst compares each department's proposed budget to prior year actual spending by category, documenting the reason for any large variance.

   Checkpoint: Large variances from prior year actuals are documented with a clear reason before the budget moves forward.

6. 5.6

   Incorporate the revenue forecast

   Budget Analyst

   The budget analyst incorporates the revenue forecast prepared with the CFO into the consolidated budget model to calculate projected operating results.

7. 5.7

   Present the preliminary budget

   Controller

   The controller presents the preliminary consolidated budget and projected results to executive leadership, highlighting key assumptions and risks.

8. 5.8

   Revise based on leadership feedback

   Budget Analyst

   The budget analyst updates the budget model based on feedback from the preliminary review, working with department managers on any required changes to their submissions.

9. 5.9

   Review the revenue forecast and margins

   CFO

   The CFO reviews the updated revenue forecast alongside the revised expense budget to confirm the plan supports the company's overall financial targets.

10. 5.10

    Obtain final executive approval

    CFO

    The CFO reviews the final consolidated budget and approves it, or sends it back for another revision cycle if targets are not yet met.

    Warning: No department budget is considered final until the CFO has approved the consolidated version.

11. 5.11

    Load the approved budget

    Budget Analyst

    The budget analyst loads the approved budget by department and account into the accounting or planning system so it is available for variance reporting.

12. 5.12

    Communicate the final budget

    Budget Analyst

    The budget analyst distributes each department's approved final budget to its manager, along with the schedule for future variance reporting.

6.Quality checks

• →Every department submission is complete before the consolidated model is built.
• →Large variances from prior year actuals carry a documented explanation.
• →The final budget carries CFO approval before it is loaded into the system.
• →Loaded budget totals by department and account match the approved final version.

7.Records

• →Department budget submissions
• →Consolidated budget model
• →Executive review notes and revisions
• →Approved final budget

8.KPIs

• →Percentage of department submissions received on time
• →Number of revision cycles needed before final approval
• →Variance between preliminary and final approved budget
• →Time from budget calendar issuance to final approval

9.Common mistakes

• →Accepting a department submission without reconciling it to prior actuals.
• →Missing budget calendar deadlines and compressing the review cycle.
• →Loading a budget version that does not match what was actually approved.
• →Not documenting the reason for a significant year-over-year increase.

10.Revision history