Budget for your business
What is a budget?
A budget is a plan to:
- Make sure you have enough money for future activities.
- Control and monitor all the finances of the business, including its income and expenses.
- Allow the extraction of information so that the company can make decisions regarding direction and growth.
Budgeting allows the business owner to rely on accurate figures that would otherwise have been based solely on guesswork. At any time, the owner should not confuse a budget with a forecast. A forecast is a prediction of the future, while a budget is a planned outcome of the future that the company wants to achieve.
What is the business budget?
Most of us don’t really think about it that 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 invoices. A budget is simply an estimate of what will happen in the future in regards to our income and expenses.
Business budgeting is a term that is often used to refer to future planning in a company. 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 for 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 objectives in financial and monetary terms.
Why create a budget?
A budget increases your business’ chances of success by estimating your future needs and predicting a profit position, as well as describing what your expenses should be and how your cash flow should work. The budget is designed to highlight potential problems before they occur, so that you have time to make changes to prevent those problems from getting worse or happening.
Many small business owners run their business entirely without setting a budget because they feel like they can make a profit even if they don’t have a budget. The fact, however, is that even if the small business is profitable, there is always the possibility that if they used the budgets and ran the business closer to the plan of those budgets, their profitability could increase much more than it was achieved without the budgets. .
The business budget is a financial business plan
The budget creation process should be straightforward if there are adequate systems in place to extract accurate information. A budget is organized in the same way 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 results of income and expenses included in the budget are compared with the actual performance of the business, as recorded in the financial statements. The budget, therefore, expresses the business plans of a company in financial language.
The entire budgeting process 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 budgets.
These include the following budgets:
- A sales or income budget.
- A shopping budget.
- A stock or inventory budget.
- An expense budget.
- An earnings budget.
- A cash budget.
- Balance budget.
- Capital funds budget.