Budgeting is a strategic planning process which entails an estimation of revenue and expenses over a specified future period that is re-evaluated on a periodic basis.
The importance of Budgeting
Identifies available capital, estimates expenditure and anticipates incoming revenue.
Helps manage cash flow more efficiently.
Allocates resources effectively. It ensures that money is allocated to items that support the strategic objectives of the business. It restricts spending that is not part of the plan.
Measures performance and ensures that objectives are met. Reviewing and comparing the budget with actuals can provide information that highlights the strengths and weaknesses of the business.
Improves decision-making and risk management.With a comparison of previous spending and current expense allocations, businesses can identify potential challenges. Identifying these issues can help management teams develop solutions before problems arise, enabling them to overcome challenges more effectively.
Provides a structured framework for planning and achieving long-term success.Companies create strategic plans for future growth and development. Data from budgets help organizations implement strategies to meet company goals. With a budget, businesses can create revenue and cost projections to make important financial decisions.
“A Budget is telling your money where to go instead of wondering where it went” Dave Ramsey
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What is Budgeting?