Business Budgeting Explained September 11, 2017

What is business budgeting?

A budget is a financial plan for the future, this looks at the revenue and costs of a fully functional business. The budget is about much more than just financial numbers, but also consists of controls. The budgetary control is the process in which financial control is exercised within an organisation. Budget for income/revenue and expenditure are prepared in advance and then compared with actual performance to establish any variance.

The managers are responsible for controlling the costs within their budgets and are required to take action if difference variances arise. A Budget management course is very handy in training managers to be more efficient in their jobs, the budget course will help them to portray the business’ needs to employees they are managing. London TFE is offering finance courses in London and worldwide to help employers train their staff in the best possible way.

What are business budgets used for?

Establish priorities and set targets in numerical terms
The managers need to provide direction and coordination so the business objectives can be turned into practical reality
Improve efficiency
Motivate staff
Monitor performance
Communicate targets from management to employees.

Why does my business need a budget?

When you are running a business, it is important to stop and put together a budget. Just as for personal budgets, a business budget is the best tool for a successful business. A fully prepared and updated business budget serves several purposes such as:

The most important purpose for a budget is to help you gather information for a business plan including all the items and expenses necessary for start-up. You will need to know what it will cost for you to open doors on the first day of your business. This includes inventory, furniture and fixtures.

After the business is all up and running, you will need your budget and other financial statements to get a business loan. Initially you might have borrowed money from a lender or a family member so you will need to have this budget to show them what the cash flow situation will look like in the next 3 years of your business. This will increase your general standing with the lender.

The budget helps you to see how much profit you require on a regular basis, you will be able to see how much money you will need to meet all your expenses. This will help you recognise the money you will need to make in the next 3 years to increase your profit margin each year.

Lastly the budget can give you information about how much you are able to spend each month. This will also help you to decide how much you can take from the business as a salary, when you first start out you might not be able take much from the business but the budget can show you how the future looks.

Struggling to budget within your business? Find out more about our budget courses