Preparing a financial budget

A financial plan is an important item that all organizations need to have.

The financial budget is the centre core that drives the business. It is through the budget that the company is able to make plans on how to run the business for a specific period while spending the finances in a way that the business makes a reasonable profit margin.

The budget guides the company on the expenditure of the finances so that there is not careless use of funds that could undermine other steps in the business.

Creation of the financial budget is not only necessary for businesses but for personal use too.

It is a great tool that helps a person plan their funds well.

The budgets that are created for personal use are however less complex. They help one to clear bill and purchase all the important goods that they need before going to the less needed commodities.

This also helps a person to plan their life, save for the greater and more expensive things that they need.

The process of making a budget is asymptotically the same for both individual and business.

However, the individual budgets do not include the official stages of approval and counterchecking.

A personal budget is more often than not taken for granted but it is an important tool that could be the difference between happiness and desperation.

It helps a person meet their goals and achieve dreams. Therefore, it is important that the budget is done in a prudent manner that will ensure all needs that one has are addressed.

 

The process of making the financial budgets is not as easy as it may seem.

It requires a deep, extensive and detailed look at the business environment that ensures that all departments are well funded to promote growth of the business.

An effective budget should include the long-term and short-term plans so that all costs including the recurrent ones are addressed.

This article discusses the stages that should be followed during the preparation of a financial budget.

 

Making updates

 

The initial stage in creating a budget is updating the assumptions that are to be made in the budget.

This should involve reviewing the previous year’s assumptions, assessing the business environment and making all the assumptions applicable to the new budget.

The review should also look into the factors that limit the company’s growth. The factors that hinder growth of a business should be evaluated because they need to be addressed in the budget. The inclusion should be the control measures that facilitate the growth.

The accountant that is tasked with the process should also assess the step costs. This is an analysis of the costs that reoccur within a financial period. The budget may be in annual periods. When using the step costs, all recurrent costs are added, depending on how often they occur.

 

Funding

Initially, the budget instructions that were used in the previous year are carried forward and updated accordingly.

The steps that a company sets up are the important procedures that are used in the process.

The sales department should also give the revenue forecast. This information gives the accounting department the idea of how much the company needs to accomplish the set goals.

The budget information for all departments should also be provided in order to ensure that all business processes well covered.

The information that is given is used for creating a budget that covers all business operations involved.

The management then provides the projected expenditure that the company can afford. The information is then used to create a budget then used to create a financial plan.

 

Completion

 

Once it is complete, it is passed to the management for approval.

Once they pass it, it is published as the budget for the financial period that is coming. It is distributed to all parties that are authorized to have it.

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