Budgets

An essential planning component is budgeting. Budgets sketch the financial plans for an organization. There are number of budget types.

Operating Budgets -- A plan should provide definition of the anticipated revenues and the expenses of an organization and more. These operating budgets can become quite detailed, to the level of mapping of specific inventory purchases, staffing plans, etc. The budgets, oftentimes, delineate permissible levels of expenditures for various departments.

Capital Budgets - Operating budgets will also reveal the requirement for capital expenditures relating to new services and equipment. This longer term expenditure decisions should be evaluated logically to that determines whether an investment can be justified and what rate and the duration of payback is likely to happen.

Financial Budgets -- A company should assess financing requirements, including the evaluation of potential cash shortages. These tools enable companies to meet with lenders and that demonstrate why and when additional support may be required.

The budget process is very much important doesn't matter how painful the process may seem it is important to the viability of an organization. Several of the succeeding chapters are dedicated to helping you better understand the nature and the elements of the sound budgeting.