Budgeting

Budgeting

It is very important to create a budget. A budget provides critical information that ensures one does not operate beyond their means, they make a profit and that they can manage their expectations. A well-executed budget has some essential elements such as, it identifies the capital, projects the revenue and estimates how much will be spent. The process of creating a budget and utilizing it for controlling the operations of the business is called the budget planning process. It acts as the foundation of the business in terms of its operations. The management is able to use this process to determine and evaluate the goals of the business and their targets. The organization is then able to run efficiently by implementing its budget.

It is important to evaluate variances between what has been budgeted and what has been expensed. This helps in the actual planning process by the manager. He is able to evaluate the changing conditions and provide for such changes in the next budget. It helps business managers to understand potential problems and know how to address them when they arise. This allows room for managers to establish a relationship with all parts of the operations. They get to know how these parts collaborate in their functions to supports and achieve the goals of the business.

The budget planning process assists the business managers in focusing on the budget. Evaluating variances helps them understand the current costs and create control for future costs that may come up from comparing the budget versus the spending of the business. The management stays alert to and ready for such variances and measures are taken. Variances are best managed by keeping monthly reports that helps in addressing them as they rise.