What is a budget?
A budget is a plan to:
- Make sure you have enough money for future activities.
- Control and monitor all business finances, including income and expenses.
- Allow extracting information so that the business can make management and growth decisions.
Budgeting allows the business owner to rely on accurate figures that would otherwise have been based solely on guesswork. At no time should the owner confuse a budget with a forecast. A forecast is a prediction of the future, while a budget is a planned result of the future that the company wants to achieve.
What is the business budget?
Most of us don’t really think about it much, but we’re budgeting every time we estimate how much cash we’re going to need for a particular purchase and how much money we’ll have left over at the end of the month after paying. our bills. A budget is simply an estimate of what is going to happen in the future in terms of our income and expenses.
Business Budgeting is a term often used to refer to forward planning in a business. It has, of course, a broader meaning than planning because it also includes coordination, management and control. In simple language, a business budget is the financial plan of a future period in your business and represents a suggested way or plan to achieve a particular result. It is a means of expressing your business goals in financial and monetary terms.
Why create a budget?
A budget increases the chances of success for your business because it estimates your future requirements and predicts a profit position, as well as outlines what your expenses should be and how your cash flow should work. The budget is designed to highlight potential problems before they occur, so you have time to make changes to prevent those problems from getting worse or from occurring.
Many small business owners run their businesses without setting any budgets because they feel like they can make a profit even if they don’t have a budget. The fact is, however, that even if the small business is profitable, there is always the possibility that if they were to use budgets and run the business closer to the plan of those budgets, their profitability could increase much more than was achieved without budgets. budgets. .
Business Budget is a financial business plan
The process of creating a budget should be simple if proper systems are in place to extract accurate information. A budget is organized in the same manner and format as a financial statement, such as an income or profit and loss statement, and generally covers a period of one year or 12 months. At the end of that year, the estimated income and expense results reported in the budget are compared with the actual performance of the business, recorded in the financial statements. The budget, therefore, expresses the business plans of a company in financial language.
Types of budgets
The entire budgeting process involves realistic forecasting, tracking, and planning. It requires that estimates be calculated, based on future events, taking into account the information available at that time.
There are many different types of budgets.
These include the following budgets:
- A sales or revenue budget.
- A shopping budget.
- A stock or inventory budget.
- An expense budget.
- For budget gains.
- On a cash budget.
- Budget balance.
- Capital funds budget.