Budgetary Planning

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Budget

A budget is a formal statement of the management plan for a specified time in the future written in financial terms. Accounting data from past records help in formulating future budgets. As a plan ahead, the budget provides definite objectives that can be used for evaluation purposes. Most businesses prepare a budget for one year. This helps in reminding the management of their sources of revenue and how to spend the revenue in the business. The budgeting process requires some considerations to be put into place. These include the economic conditions, industry trends, price changes among others. All levels of management need to be invited to coming up with a budget. In the process of coming up with the final budget, a business should prepare its sales budget, production budget as well as direct material budgets. This will help in breaking down the expected expenses of the business and the expected income for the workers to be motivated. Essential of an effective budget include the acceptance by the management, analysis as well as market research and sound organizational structure. A budget plays a very critical role in facilitating activities coordination in the business. It also brings about greater awareness by the management regarding the overall operations of a business. Through a budget, any problem in the future will be shown through the created warning system. However, a budget should be able to provide the business's attainable goal and at the same minimize cyclical or seasonal fluctuations. Its major aim will always to provide reliable estimates for the business to rely on.