Basics of a Budget

by Investing School on July 9, 2010

The word budget comes from the French word, “bougette” which means purse. A budget is usually characterized as a list that details all planned expenses and revenue for a month or year, etc. It is also a plan for saving and spending. It is highly individualized so people and companies can customize how they want to format their budget. However, the purpose of budgeting is usually for the purpose of forecasting revenues and expenditures. Following the budget will enable the business or person to reach the goals that have been set forth.

When establishing a start up business budget, one will need to keep a list of all necessary purchases. This would include equipment, rental space, inventory, etc, services, working capital, sources and collateral. The budget should contain details that explain how the business decided on the amount of reserve cash and then an elaboration on what the expected financial results of the business activities will be.

A corporate budget is usually drafted annually. This depends on the needs and desires of the company, however. While the finance department of a company usually drafts the company budget, there are software programs available today that make it possible for each department to list their own expected revenues and expenses in the final budget. This alleviates a lot of work for the financial department.

The budget is a good benchmark, as well. If the figures on the budget match what the business is able to achieve within a given time period then it will suggest that the managers are in control and understand how to manage the business successfully.

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