Financials & Advisers

What is Business Budgeting?
Most of us do not really think much about it, but we are preparing a budget every time we estimate how much cash we are going to need for a particular purchase and how much money we will 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 as far as our income and our expenditure is concerned.

Business Budgeting is a term often used to mean forward planning in a business. It has, of course, a wider meaning than planning because it also includes coordinating, managing and controlling. In simple language, a business budget is the financial plan of a future period in your business and represents a suggested way or plan of achieving a particular result. It is a means of expressing the goals of your business in financial and monetary terms.

A Budget is Not a Forecast
A forecast is a prediction of the future, whereas a budget is a planned outcome of the future that the business wants to achieve.

A budget is basically the plan of your business shown in money terms because it estimates your sales, purchases and your other business expenses, including drawings you take for yourself for the next 12 months. It is designed to force you to work as close to your budget as possible, so that if unexpected costs arise, then the budget can be adjusted or amended if that happens.

It indicates where your money will be going and how this money will be raised, with the main objective of course to ensure that the business income is greater than its expenses and therefore results in a profit.

In general, the budget is prepared to coincide with the financial year of the business, but budgets can be split monthly or quarterly, so a closer monitoring of the operation of the business is possible.

What Good Budgeting Does
Budgeting is really a means that enables your business to express its goals in financial terms. It is a future estimate of your performance, as well as your income, expenses, profitability and details of other transactions.

Good budgeting will encourage you to be forward thinking. It also enables a framework to be built to mirror the operations of your business. It sets down incentives and standards by which your business is operated. Your budget will highlight areas, enabling better decision-making. It also enables better control over your business by comparing its actual performance with a pre-determined plan.

The whole budgeting process therefore involves realistic forecasting, monitoring and planning. It requires estimates to be calculated, based on future events, taking into account the information available at the time.

There are many different types of budget, all of which are covered later on in this section.

These include the following budgets:

  1. A sales or revenue budget.
  2. A purchases budget.
  3. A stock or inventory budget.
  4. An expenses budget.
  5. A profit budget.
  6. A cash budget.
  7. Break-even budget.
  8. Capital funds budget.

The 7 Main Budgets in Most Small Businesses

The main budgets are:

  1. Sales
  2. Purchases
  3. Stock
  4. Expenses
  5. Profit
  6. Cash
  7. Breakeven