Understanding All About Budget

Understanding All About Budget

Whenever you plan for a trip, you pack your bag with money, clothes, and food that you would require. This is how the concept of budgeting originated- Planning the trip and making sure that you got all the resources in the bag for the trip. Similarly, the organization plans the business journey in advance and creates an action plan known as a budget. While in trading, a trading plan is formulated in the initial stage to take you through the transactions smoothly and achieve the goal. There are many automated trading software like bitcoin trader which assists you in achieving the goal.

More about budget

The process of budgeting could be complex in bigger organization. In the initial stage of its conception, the organization should focus on two budgets that are basic: cash budget and operating budget. Usually, these budgets could cover the time-span of one year.

Operating budget- This budget helps in providing the business with the guidelines on how to conduct its operation in the following year. It gets information from different functional areas like production, marketing, design, customer service, and distribution. Then the budgeting is conducted to arrive at an income statement which shows the profit the business is expected to make at the year-end.

Cash budget- This budget would not be as intuitive when compared to the operating budget as it concentrates only on the financial aspect.  Budget ensures that the business got enough money to fund all its activities throughout the current period. The businesses which are growing always experience a cash crunch even though sales revenue gets generated and making a profit. The major goal of cash budget is to make sure that you never run out of cash.

Key to success

For instance, if the business you are into is the manufacturing of food, then you need to keep evaluating the proceedings of sales after the completion of 3 months.  If you discover that the sales revenue generated are lower than expected after the review, you need to conduct further review. Let’s say on further research you found out that one particular product line is performing below the budget because of some special promotion offered by the competitor. This is where the business needs to concentrate on to take corrective action as the customers are responding to the promotion and purchasing more product form the competitors and fewer products from you.  Hence budget helps in taking appropriate actions at the right time to save the business from suffering loss.