A budget helps an organization to allocate the financial resources of the company to different departments and activities in order to manage the cash flows of the business in an orderly and effective way. There are many types of budget and one of them is the finance budget.
A financial budget in budgeting is the process that involves making predictions about the incomes and expenses of the business on both a long-term and short-term basis. Right projections of the cash flow go a long way in helping businesses achieve their targets.
Financial Budget Preparation Includes:
- A detailed budget balance sheet,
- Cash flow budget,
- Income sources and
- Business Expenses etc.
The Evaluation of Incomes and Expenses is Done on:
- Half-yearly or
- Annual basis
All depending upon the suitability of the organization. A financial budget is a very powerful tool to help a business achieve its long-term goals. It keeps the shareholders and other members of the organization up to date about the internal functioning of the business and helps retain their confidence in the operating practices of the business.
Financial Budget Plan
The financial budget plan includes the following steps:
- Calculate the expected inflow
- Calculate the expected outflow
- Set the targets
- Divide the expenses into different categories
- Keep the track of components in the budget
- Set up the ledger
The above points give an idea about how a financial budget plan is prepared. Different organizations may take different factors under consideration while preparing the budget. However, the above points are common to any budget plan.
It provides a blueprint for the business on how to move ahead. It addresses not only the financial aspects of the business but also checks its operational efficiency. The extra expenses could be cut by emphasizing cost reduction and improving the market share. With the inputs from financial budgets, the organization is well prepared to meet the long-term and short-term expenses. A good financial budget helps a lot in achieving the goals and objectives of the business in the shortest possible time span.
Read More: What Is Financial Accounting?