An in Depth Look at Budgeting
Budgeting plays an important role in many small businesses and large corporations. It is also considered the key to financial management. (Civicus) Why are budgets so important to businesses? Having a well developed budget will inform the company on how much money it will take to carry out its activities and will lower the possibility that the business will go bankrupt. “Budgets are used in managing the operations of government agencies, churches, hospitals, and other nonprofit organizations. Individuals and families also use budgeting in managing their financial affairs. (Warren 956) Before someone can develop a budget they must understand what a budget is. “A budget is a document that translates plans into money - money that will need to be spent to get your planned activities done (expenditure) and money that will need to be generated to cover the costs of getting the work done (income). It is an estimate, or informed guess, about what you will need in monetary terms to do your work.” (Civicus) Although a budget is a written plan to manage money, it is always subject to change.
How are budgets prepared for companies? There are three steps that a business must follow in preparing a will developed budget. First a company must plan. “Planning involves setting goals as guide for making decisions. Budgeting supports the planning process by requiring all departments and other organizational units to establish their goals for the future.” (Warren 957) Although planning is important to the budgeting process, it is not the only factor that affects the budget. After a budget is strategically designed, the company must follow through and make decisions that enforce the planned budget. This process is called directing. “Directing involves decisions and actions to achieve budgeted goals. Budgeting aids in coordinating managements’ decisions and actions to achieve the company’s budgeted goals.” (Warren 957) After a company has planned a...
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