What is a budget, and why is it necessary?
Budgeting is a core component of financial planning that provides a roadmap to reaching financial targets. Budgets assist in managing costs and forming a basis on which progress can be measured relative to business objectives.
A corporate budget is a comprehensive estimation of what a business’s expenses and revenues are expected to be for any given fiscal period. Often, people think of a budget in terms of expenses, but this is just one part of it.
Business budgeting is just one of the primary activities in corporate performance management (CPM). With developments in the world of CPM only increasing, business professionals find themselves working with budgets with greater accuracy.
How do you go about setting a budget?
There are 6 main steps that are used in determining a budget.
- Communicating with management
- Establishing goals and targets
- Developing the budget to support goals
- Compiling and revising the budget
- Reviewing the budget
- Approving the budget
When selecting the relevant budget methodology, some things to consider include how much time can be devoted to budgeting, how much historical data is available, how accurate you need your budget to be, and what type of budget will best serve your business model.
Learn more about the 4 primary approaches to budgeting and what budgeting tools and software you should consider.
