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Budgeting:
All business owners should recognise and understand the importance of preparing and maintaining a financial budget for their business.
Budgets are an essential financial planning tool, a method of control over the day to day operation of the organisation, and an opportunity to involve people at all levels in the budget planning and implementation process.
In many cases of business failure the major contributing factor was the inability of the organisation to either comply with a predetermined budget, or a failure to prepare a budget at all.
Budgets have a number of purposes, including:
Budgeting and budgetary control can be regarded as a combination of forecasting, planning, and monitoring financial results against plans.
By forecasting aspects of revenue and expenditures (using available information), and then following up with regular comparisons of actual results against budget, managers can determine what action if any should be adopted in order to:
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APPLICABILITY OF OPERATING CYCLE
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