Financial Budget: What Is A Budget?

What Is a Budget?
A budget is an estimation of revenue and expenses over a specified future

period of time and is usually compiled and re-evaluated on a periodic
basis. Budgets can be made for a person, a group of people, a business, a
government, or just about anything else that makes and spends money.
To manage your monthly expenses, prepare for life's unpredictable events,

and be able to afford big-ticket items without going into debt, budgeting is
important. Keeping track of how much you earn and spend doesn't have to
be drudgery, doesn't require you to be good at math, and doesn't mean
you can't buy the things you want. It just means that you'll know where
your money goes, you'll have greater control over your finances.
Understanding Budgeting
A budget is a microeconomic concept that shows the trade-off made when
one good is exchanged for another. In terms of the bottom line—or the end
result of this trade-off—a surplus budget means profits are anticipated,
a balanced budget means revenues are expected to equal expenses, and
a deficit budget means expenses will exceed revenues.
KEY TAKEAWAYS
 A budget is an estimation of revenue and expenses over a specified

future period of time and is utilized by governments, businesses, and
individuals.
 A budget is basically a financial plan for a defined period, normally a
year that is known to greatly enhance the success of any financial
undertaking.
 Corporate budgets are essential for operating at peak efficiency.
 Aside from earmarking resources, a budget can also aid in setting
goals, measuring outcomes, and planning for contingencies.
 Personal budgets are extremely useful in managing an individual's or
family's finances over both the short and long term horizon.
Financial Budget
A budget helps an organization allocate the resources of the
company to different departments and activities and manage the
cash flows of the business in an effective way. There are many
types of budgets. One of them is a financial budget.
What is a Financial Budget?
A financial budget (a type of master budget) in budgeting means
predicting the income and expenses of the business on a long-term
and short-term basis. Accurate projections of cash flow help the
business achieve its targets in the right way.
Financial budget preparation includes a detailed budget balance

sheet, cash flow budget, the sources of incomes and expenses of
the business, etc. The evaluation of incomes and expenses is done
on a monthly, quarterly, half-yearly or annual basis, depending on
the suitability of the organization. It is a very powerful tool to
achieve the long-term goals of any business. Importantly, it also
keeps the shareholders and other members of the organization
updated about the functioning of the business.
Let’s explore why financial budgets are prepared.

Why Prepare a Financial Budget?
Organizations prepare a financial budget to manage the cash flows
in a better way. This budget gives the business better control and
provides a more efficient planning mechanism to manage the
inflows and outflows. To prepare such a budget, it is important to
prepare the operating budget first. With the help of the operating
budget, the organization can predict the sales and production
expenses. Therefore, the organization prepares this budget only
after planning the different financing activities in the operating
budget.
Translating Strategy into Targets and Budgets
There are four dimensions to consider when translating high-level strategy,

such as mission, vision, and goals, into budgets.
1. Objectives are basically your goals, e.g., increasing the amount each

customer spends at your retail store.
2. Then, you develop one or more strategies to achieve your goals. The
company can increase customer spending by expanding product
offerings, sourcing new suppliers, promotion, etc.
3. You need to track and evaluate the effectiveness of the strategies,
using relevant measures. For example, you can measure the average
weekly spending per customer and average price changes as inputs.
4. Finally, you should set targets that you would like to reach by the
end of a certain period. The targets should be quantifiable and time-
based, such as an increase in the volume of sales or an increase in the
number of products sold by a certain time.

Goals of the Budgeting Process
Budgeting is a critical process for any business in several ways.
1. Aids in the planning of actual operations
The process gets managers to consider how conditions may change and
what steps they need to take, while also allowing managers to understand
how to address problems when they arise.
2. Coordinates the activities of the organization
Budgeting encourages managers to build relationships with the other parts

of the operation and understand how the various departments and teams
interact with each other and how they all support the overall organization.

3. Communicating plans to various managers
Communicating plans to managers is an important social aspect of the

process, which ensures that everyone gets a clear understanding of how
they support the organization. It encourages communication of individual
goals, plans, and initiatives, which all roll up together to support the growth
of the business. It also ensures appropriate individuals are made
accountable for implementing the budget.
4. Motivates managers to strive to achieve the budget goals
Budgeting gets managers to focus on participation in the budget process. It

provides a challenge or target for individuals and managers by linking their
compensation and performance relative to the budget.
5. Control activities
Managers can compare actual spending with the budget to control financial
activities.
6. Evaluate the performance of managers
Budgeting provides a means of informing managers of how well they are

performing in meeting targets they have set.

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What Is a Budget?

A budget is an estimation of revenue and expenses over a specified future

To manage your monthly expenses, prepare for life's unpredictable events,

 A budget is an estimation of revenue and expenses over a specified

Financial budget preparation includes a detailed budget balance

Let’s explore why financial budgets are prepared.

Translating Strategy into Targets and Budgets

There are four dimensions to consider when translating high-level strategy,

1. Objectives are basically your goals, e.g., increasing the amount each

Goals of the Budgeting Process

Budgeting is a critical process for any business in several ways.

1. Aids in the planning of actual operations

2. Coordinates the activities of the organization

Budgeting encourages managers to build relationships with the other parts

Communicating plans to managers is an important social aspect of the

4. Motivates managers to strive to achieve the budget goals

Budgeting gets managers to focus on participation in the budget process. It

6. Evaluate the performance of managers

Budgeting provides a means of informing managers of how well they are

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