Budget Setting and Reporting
What is a Budget?
A budget is a financial plan that outlines the businesses income and expenses over a specific period, typically a month or a year. It serves as a tool for managing and controlling finances, helping business owners allocate resources effectively and achieve their financial goals. It also aids to track the performance of the business and can be formatted to easily identify when a business has exceeded or performed under budget.
Key Components of a Budget Include:
Income:
This includes all sources of money coming in, such as sales, investments, and other forms of revenue.
Expenses:
These are the costs and expenditures incurred by a business. Expenses will be categorised as cost of sales which will be any cost relating directly to producing the sale, such as direct labour or materials and overheads which are costs that are incurred by the business whether or not a sale is made, such as admin staff, insurance and rent for example.
Savings:
Budgets often include a savings category to encourage businesses to set aside money for taxes, future goals, contingencies, or investments.
Debt Payments:
If applicable, a budget will account for payments towards loans, credit cards, or other forms of debt.
The primary goal of budgeting is to ensure that spending aligns with income, helping business owners to ensure that they are not trading beyond their means and to plan for future growth in a sustained manner. This enables the business owner to make informed financial decisions. It also provides a basis for monitoring financial progress and making adjustments as needed.
