A budget is an estimate of income and expenses for a business for a given period of time. The budget contains the company’s revenue goals as well as expenditure limits. The importance of a budget cannot be overstated – without a budget companies cannot make the right decisions regarding the long term plans or even day to day choices.
Benefits of preparing a budget:
- A budget is a communicates company plans to internal stakeholders
- To hold management accountable for the budgeted revenues and expenditure
- A budget helps in implementation of a company’s strategy
- Enable proper allocation of business resources to enable attainment of business goals
- Budgets help coordinate activities across different business units towards a common goal
- Budget evaluation informs management if the business is on track towards attainment of set goals
- A budget sets benchmarks for evaluating company and management performance and can be the basis for promotions, bonuses or salary increments
The common types of budgets are:
- Operating Budget – This is a detailed projection of what a company expects its revenues and expenses to be over a given period of time. This includes projections for sales, payroll costs, rent for premises, selling and distribution costs, operational costs, among others.
- Capital Budget – A planning process used to determine which of an organization’s long term investment opportunities are worth pursuing. The investment opportunities could be new machinery, new products, research and development, new premises, among others.
- Cash Budget – This is an estimate of the cash flows of an organization over a period of time, such as weekly, monthly, quarterly or annually. This budget is used to access whether the organization has sufficient cash to continue operations over the specified period of time.
Even though budgeting is beneficial to businesses, implementing an effective budget is not easy. At Optima Accounting Services we have experienced consultants ready to guide your company through the entire budgeting process and setting up a budget that is convenient, easy to manage and effective at helping the organization attain strategic goals.
Get in touch with us on 0700 053980 or info@optima-accounting.co.ke for all your budgeting needs.
