The budgeting process is utilized by managers to calculate and document the costs associated with running and keeping a business operating at a healthy level are estimated, expected revenues are projected, and then decisions are made which define how much debt you are in and how much can afford to borrow, and how much you can afford to spend on new purchases, new employees or new ventures. A budget must be established to measure current financial performance, detect substantial changes in circumstances or business conditions, it must be realistic and attainable, and be based on a thorough analysis that includes a clear identification of the budget's purpose to the company's mission, goals and objectives along with a comprehensive assessment of the departmental needs associated with the creation of the budget.
The budgeting process involves four main stages which are: preparation, approval, implementation and evaluation. The first step, preparation, involves the development of expenditure estimates in light of available revenues. In a nutshell, this is the step in which the operation costs are weighed against available funds and business revenues. The next step, approval, occurs after the budget estimates are submitted to the person or persons responsible for the approval process, such as a board of directors, or upper management. Once approved, the adopted budget is implemented across the course of the year and plans should be adhered to according to the budget that was prepared and approved. After the implementation step, a business must perform an evaluation on the budget and it's effectiveness within the organization. Each of these steps is crucial to the overall success of the budgeting process. If one step is left out or skimmed over, the success of the budget could eventually fail due to the lack of thoroughness. They are an extremely effective tool, and the success of the budget hinges on the adherence to these stages. A detailed...
References: Welch, J., Welch, S., (2006) Stop the B.S. Budgets. Business Week, June 26, 2006, Issue 3990, p. 114 (1)
Rose, V., (2004). Budgeting: It 's everyone 's responsibility. Nursing Homes Magazine, August 2004, p. 28(3).
Walker, D. (2004) Budget Process: Long-term focus is critical. United States General Accounting Office Testimony Before the Subcommittee on Legislative and Budget Process, Committee on Rules, House of Representatives. March 23, 2004, 13 pages.
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