Business managers need to look ahead at what lies in the future.
A budget is an agreed plan for future expenditure and income from sales
based on the objectives of the business.
A budget helps managers to measure whether they are achieving what they
set out to achieve, if not they know to take action.
Budgets also provide a way of allocating responsibility among employees.
The main types of budget are:
a month by month breakdown of how many products the business aims to
sell, and how much revenue it will get from those sales.
describes how the business intends to achieve the budgeted sales (e.g. how
much advertising, sales promotion).
numbers to be produced and costs of production – used to help schedule
work and order raw materials.
sets out how much each department can spend during a year.
Cash flow budget – ties all the other budgets together – helps understand
what money is coming in (sales) and what money is going out (production
A budget can play a role in motivating employees in the following way:-
budgets provide a focus and a sense of achievement when it is reached.
rewards in the form of bonuses can be linked to the achievement of budgets.