Every company needs a fair forecast of the necessary budget for its daily operations. A budget plan is the financial resources that a firm has to allocate to corresponding departments and branches of the company. It is for them to conduct the needed activities and manage the cash inflows and outflows for efficient business management. Hence, Financial Budgeting plays a significant role in every organization.
Let’s define the function Financial Budgeting:
This financial budgeting is the process of forecasting the revenue and expenditures of an enterprise in both short and long periods of time. It is important to obtain the accurate estimation in every category so that the firm can maximize the cash inflows and minimize the inflows at the most efficient process.
Every organization has to prepare a Financial Budgeting Report that contains informative financial details such as the firm’s balance sheet, income statement, equity, business costs and the like. This has to be implemented on a monthly and annually basis based on what type of organization you have. As long as you have the updated data, your department can properly monitor if the firm is meeting the budget or exceeding beyond it. Therefore, you can immediately correct the potential problems to ensure that the goals are being accomplished. This tool will give you together with the shareholders to see the financial condition of the company.
Is Financial Budgeting Helpful to Organizations?
Financial Budgeting absolutely helps every business to efficiently manage their finances and cash flows. They obtain full and better control in managing the company’s financial requirements to keep the business running. This includes financing firm’s marketing, production, supply chain management, labor cost, sales, overhead expenses as well as managing the obtained revenue. The organization will be able to compare its overall expense against their earned revenue. It is either net income or net loss has been incurred depending on the business performance. After setting the chronological financing activities, that’s the only time a firm must plan the budget to identify the needed capital.
3 Categories of Financial Budget
1. Cash Budget
This section of financial budgeting contains the entire information about the cash inflows and outflows in an organization. Since every business faces dynamic marketing needs and societal changes, this section will continuously change. It is not that stable. So that cash budget must have a quick overview containing the changes in both inward and outward cash flowing in the business.
2. Capital Expenditure Budget
This is directly pertaining to the capital assets expenditures or expenses such as the cost of plant or factory operations, machines, and the like. Capital Expenditure Budget aims to identify the future expense once the organization decides to purchase new assets to support their operational activities. Moreover, the capital assets depreciation cost is also being recorded in this section for better estimation of its current values.
3. Budgeted Balance Sheet
The balance sheet contains the organizational financial statement that encompasses liabilities, equity and assets. The income and cash flow statement is also included in this part as it will help owners and investors to verify if the firm is in good financial health or not. Once they find out that the financial obligations are bigger than what the company is earning, they are probably facing a huge detriment that could affect the life of the company.
No matter what industry you are in, financial budgeting would be your great tool in getting adequate funds for your business. Without it, you will not be able to organize your finances efficiently and may lead you to inefficient budgeting. Just imagine a home buyer in Greenville with no financial standards in buying a property. It should be done in a reasonable manner. Such as buying an ordinary duplex home that has lower value than the market price and turning it into a wonderful property that may provide you with huge profits. Always remember that your business latest cash inflows must be higher than your cash outflows or operational costs.