Budget Documents
The budget enables day-to-day decisions to be made in respect of finance. It is a management tool that assists managers to:
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Provide a forecast of revenues and expenditures i.e. construct a model of how our business might perform financially speaking if certain strategies, events, plans are carried out. |
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Provides managers with information that enables them to make decision with respect to finance |
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Enables the actual financial operation of the business to be measured against the forecast i.e. is the business living up to our expectations. |
Budget documentation in the operational plan might include a forecast income and expenditure and a statement of cashflows through the year. Samples of budget documents are contained within the appendices.
Budgets are more than just a few calculations that we throw away when the questions are answered. In a business context, a budget, once constructed, becomes an essential tool for the financial management of the business. In fact operating a business without a budget is very bad management. In order to make sound financial decisions it is necessary to review the budget to determine whether a proposed course of action fits within our planned financial strategies or not. If the answer is in the affirmative, i.e. the item is "budgeted", then there is a great deal of confidence about continuing to pursue the strategy, provided the item is kept "within budget". If the answer is in the negative, then there is an understanding that continuing to pursue that strategy has a higher degree of risk. That does not mean, however, that any departure from the set budget is inadvisable. It may be that "unbudgeted" strategy or event has obvious financial benefits. Furthermore it may also be the case that the budget itself was incomplete.