Budget projections are useful as they aid in the preparation of a business plan, allows companies to compare the projected budget against actual financials which would in turn allow management to make informed decisions in terms of planning of major developments and exploring of new and practical strategies when coming out with a new budget for the new year. It also allows the spotting of inefficiencies, therefore allowing companies spot budget items that have overshot its intended budget and evaluate the reasons behind why.
A budget projection is normally done by using a spreadsheet, which is basically a computer application that simulates a paper, accounting worksheet which displays multiple cells which together make up a grid consisting of rows and columns. For each cell, you are able to type in the desired numbers or text. This makes budgeting simpler compared to the conventional pen and paper. An example of a spreadsheet application is Microsoft Excel.
Firstly, to begin budget projection, it is recommended to start with the previous year’s financials. Meaning, compare your projected budget with the previous year’s expenditures. Is it practical? Does it look similar? Basically the previous year’s financial provides a guideline on how you should go about doing this year’s projected budget. However, if this is the first time a company is doing budget projection, the company should obtain some existing financials from similarly sized business in their respective industries to get an overlook of what a budget would look like in that particular industry.
Secondly, the usage of industry references or standards. They...