It is a detailed and time-limited plan that is expressed in numbers and that is made for a business to achieve the objective that is desired. Budget is closely related to the concept of planning. We can say that budget is a plan that covers all the business activities and that is expressed in monetary form.
In today’s businesses, the secret of success lies in “planning”, “organization” and “supervision”. Budget makes the communication tool between the planners and implementers a monetary one.
Why is business budget necessary?
In each budget period, we make an effort for budget preparations lasting for days or weeks, depending on the size of the business we are in. So why is it necessary to make a budget? Why do we make such an effort?
Budgeting provides an important contribution to a company in planning the future once again based on the feedback that appears in relation to the changing conditions.
If a budget is feasible, fair and it is prepared with a large level of participation, then it increases the communication between the business owners and the employees, as well as increasing the loyalty and motivation to a significant extent.
How to make a good budget?
A good budget is based on the data of the past period and uses those data as a reference. At the same time, it should be based on detailed information and it should contain the expected expenditure amounts and information on all the internal and external factors.
Budgeting process must be realized as a result of team work. In budgeting that is made through participation, each department identifies the needs and requirements according to the objectives of the company and for its success
Phases of Budget?
• Identifying the goals
• Identifying all the assumptions that will make one achieve the goals
• Comparting the options
• Determining the optimum one among the options
Benefits of budget can be listed as follows:
• Budgeting brings about the need to think about the future and to make predictions.
• It is a road map that determines the action plan of the business that is in line with its goals.
• A detailed budget makes it possible to use the resources of the business in an effective and efficient way.
• It makes it possible to foresee the possible problems that you will face on the road to achieveing your goals and prevents you from being caught unprepared.
• It makes it possible to see the whole of the general way in which the business works and so it facilitates identifying those processes that have flaws.
• It strengthens estimating and planning talents.
• It becomes possible to notice the departments where there are flaws and implementing corrective activities by comparing the budget with the actual situation.
• Coordination among the different department of the business is ensured.
• The financial talents of the department managers are strengthened.
• It facilitates a better understanding of the plan and goals of the firm by lower strata managers and staff.
• It contributes to most economic use of the production factors, namely labor, raw materials, materials, capital and production facilities. It improves resource usage.
• Budgeting makes it easier to understand the firm as a whole.
• It makes it possible to supervise the activities effectively.
• Budget preparation also has benefits such as facilitating obtaining loans from finance institutions, accelerating the process in which the accounting department provides the data that are required for planning and control, ensuring the organizing of the firm so that determining the responsibilities of each deparment of the firm while they carry out their work becomes possible.