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What Is an Administrative Budget?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 17 September 2016
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An administrative budget is a financial plan for the administrative side of a business for an accounting period like quarter or year. It includes costs not directly associated with the production of goods and services. Controlling budgets is critical for companies of all sizes, as a large budget can eat up profits and make it difficult for a company to grow. If a company is publicly traded, it also has an obligation to protect shareholders with sensible budgeting, and in some cases companies may have a legal obligation to disclose the administrative budget.

This document contains a detailed breakdown of anticipated expenses for support operations related to the business, ranging from legal services to secretarial payroll. The administrative budget defines a number of departments and their functions, and discusses the fund allocations available to them. The size of this budget can vary, depending on the company; some companies have very high associated overhead costs, while others have costs concentrated directly in production.

Certain organizations must disclose their administrative budget. In governments that value transparency, this document is available for review by taxpayers, and people can submit comments. Publicly traded companies need to discuss budgeting in annual reports and other declarations. Likewise, registered charities must show how they use their funds, and a high administrative budget can be a deterrent to donors who want to see the bulk of their funds concentrated on the delivery of goods and services to the needy.

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Planning an administrative budget can take weeks or months. The company needs to be able to anticipate costs as accurately as possible, and may factor in issues like inflationary spikes. It lays out goals for the accounting period and may discuss these in the budget. For example, the legal department's budget might expand because a company is preparing a new product that requires legal consultation, and thus the expenditure is justified. If a company cannot explain a sudden jump in administrative expenditures, this could represent communications or efficiency problems within the company's administration.

Accountants, analysts, and others may consult an administrative budget from a prior period for information. Upward creeps in administrative costs tend to become an issue over time and sometimes these budgets become bloated. In these situations, personnel need to sit down to determine how to most effectively cut the budget to meet administrative needs while refocusing funds onto other purposes. This could include departmental restructuring and other measures to increase efficiency and cut down on costs associated with administrative activities.

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jsmay
Post 2

@alianor - Actually budget administration, even for a small company, can be an extremely useful thing. By estimating expenses, business owners can target areas where they tend to spend a lot of money and then accordingly plan cutbacks.

Keep in mind that they're only estimates and don't have to be entirely accurate. An easy way is to look at the previous year's documents and figure out whether you might have to spend roughly the same amount for the upcoming year. Try doing a search online for an administrative budget template to help you get started!

alianor
Post 1

For small business owners, all of this paperwork seems to be a bit much. Wouldn't it just be easier to update the financial documents a little at a time each month as the expenses come in? How does one even estimate administration expenses accurately, especially if they might vary throughout the year?

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