An effective budget management process with Odoo

The end of the year is approaching quickly, which means it's time to look ahead. A well-thought-out budget management process is crucial for any business, regardless of its size or sector. Whether you're drafting a budget for the first time or your company is becoming increasingly complex, setting up a clear budget management process with Odoo can be a challenge. To help you get started, we share some essential tips and steps for developing a strong financial budget in this article.

Why is an annual budget essential?

Before diving into the practical side of creating a budget with Odoo, it's important to understand why it's so valuable. A budget offers more than just an overview of income and expenses; it's a strategic tool that provides direction for your company.

Avoid cash shortages

This may sound obvious, but a budget helps you avoid financial shortfalls. It ensures you always know where you stand and allows you to take quick action if the numbers deviate from expectations.

Insight into your company's future 

A budget forces you to think ahead. Where do you want to take your company? What investments are needed for growth or change? With a well-planned budget management process, you can answer these questions and shape your strategy.

Identify your business’s key drivers 

A financial budget provides insight into the factors that affect your business outcomes. Consider things like sales volumes, customer behavior, or the efficiency of internal processes. This insight helps you better steer toward growth.

Flexibility to adjust 

Once you understand the driving forces behind your results, you can develop scenarios. What happens if you invest more in a certain area? How does that affect your business outcomes? This gives you the flexibility to respond to opportunities and risks.

What should you consider in a budget management process with Odoo?

A financial budget with Odoo is about forecasting your company's performance for the coming year. Start by gathering data from your balance sheet, profit and loss statement, and cash flow statement in Odoo. Here are a few crucial elements to consider:

Future changes in your company Planning to expand, launch new products, or hire staff? These changes will directly impact your costs and revenues. Take this into account when drafting the budget.

Profit and margin targets Set clear margin goals and use Odoo to analyze your cost structure. This way, you'll know exactly what's needed to stay profitable. 

Financing plans Expecting to raise capital or take out a loan? This will affect your available resources and how you plan future growth.

Steps for drafting a budget

An operating budget essentially consists of two main components: revenue and costs. Here's a brief overview of how you can structure these:

Net revenue This is the money your business brings in. You can further break down revenue into price effect and volume effect. Also, consider the quality of the revenue: how stable and predictable is your income?

Cost of goods sold For trading companies, this is the cost of purchased inventory; for manufacturers, it’s the cost of raw materials and direct production costs. A clear understanding of the cost of goods sold helps you manage margins. Reports from Odoo’s inventory and production module are a good starting point.

Gross profit This is the profit you have left after subtracting the cost of goods sold. It’s an important indicator of your company’s operational health.

Operating expenses Personnel, housing, marketing, and logistics are often the largest expenses. By budgeting these carefully, you can detect and address any deviations in time.

EBITDA and net profit EBITDA gives you insight into operating profit before interest, tax, and depreciation. Net profit, after all costs are deducted, offers a complete financial picture.

From operating budget to cash flow forecast

Drafting an operating budget is step one. But don't forget that investments in working capital and fixed assets also impact your cash flow. A solid cash flow forecast takes into account things like:

Net working capital Managing inventory, receivables, and payables directly affects your cash position. Higher revenue generally requires a greater investment in working capital.

Investments (CAPEX) Major investments in fixed assets, such as machinery or IT systems, can cause significant cash outflows. Ensure that these investments align with your long-term goals.

Financing Raising capital through loans or investors can help finance growth, but it also brings obligations. Make sure your budget is aligned with this so you can always meet your commitments.

Need help drafting a budget?

A well-thought-out budget can make the difference between success and struggle. At doo.FINANCE, we have the tools and expertise to simplify your budget management process with Odoo based on your data in Odoo. Our software integrates with Odoo and not only provides you with detailed financial forecasts but also helps you make adjustments throughout the year as needed.