How Do I Develop a Master Budget?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 August 2019
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Master budgets are corporate-wide budgets that encompass every aspect of the business operation, allocating specified amounts of resources to each department or entity within the company structure. The creation of a master budget can be managed in several different ways, depending on the culture of the company. In some cases, the budget is prepared with minimal input from employees outside the financial division, while at other times each department manager is responsible for preparing and submitting a budget that is reviewed and eventually included in the master budget. There are even models that allow a combination of salaried and hourly employees to participate in the budget process, an approach that can have the benefit of making everyone feel more invested in the ongoing success of the company.


One of the more common models for developing a master budget involves the creation of a central team or committee that can identify the goals of the business for the upcoming budgetary period. Typically, this committee will involve the corporate financial officer and other key members of the executive team, along with key managers within the company organization. The idea is to use historical data along with projections of income during the upcoming budget period to develop an informed idea of how much revenue the company is likely to generate. From there, the committee can allocate funds to each department, requiring department heads to review the allocations and then establish operational budgets for their areas of responsibility. Those departmental budgets are reviewed and, if found acceptable by the financial officers of the company, are included within the corporate or master budget.

A second approach is sometimes known as the top-down method. With this approach to the master budget, only key members of the executive team participate actively in the preparation of the corporate budget and the allocation of funds to each of the departments within the organizational structure. Those same executive team members also oversee the budgeting plans for each department, effectively determining how those funds will be spent in each area of the operation and informing managers how they will go about conducting their departments in order to stay within the budget.

One model for developing a master budget that is often helpful in smaller companies is known as the grassroots approach. In this scenario, the identification of budget line items and the allocation to those line items is determined by involving employees at every level of the operation. The idea is to collect input and ideas from hourly employees, supervisors, managers and executives to create a budget that is both workable and reflects the concerns and goals of the widest possible range of people associated with the operation. This level of involvement, while difficult to manage, can result in employees feeling more a part of the operation, a factor that can often inspire greater drive to be productive, avoid waste of resources, and in general be more aware of what can be done to help keep the company within that final master budget.


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