Budgeting can be defined as
the process of planning and anticipating costs and expenditure of
various financial resources on projects. It is the process of making
specific financial plans for a short period of time. It helps in
predicting and controlling the money spent within the organization and
also involves day to day monitoring of current budgets.
It involves making different budgets including:
- Sales Budget: The budget is made to forecast sales in
terms of units sold and value of goods sold. This budget acts as a
base for making production budget.
- Production Budget: The budget is made on the basis of
sales budget and forecasts the number of units to be produced in
coming months and how will production schedule be adjusted to meet
the sales target.
- Financial Budget: The budget is made to forecast the cash
and capital requirements for different projects and how those
financial needs be met.
Today, companies are outsourcing the budgeting process to
professional accounting firms for better planning & allocation of
resources. It helps the company to utilize its current resources in the
best possible manner.
Budgeting provides the company the following advantages:
- Helps the management set out detailed plans for different
- Optimum resource allocation
- Helps the management set different budget targets
- Provides a yardstick against which the actual financial and
non-financial performance can be measured
- Better management of scarce resources
- Better time management