9.18: Budgeting and Business
Learning Outcomes
- Describe the advantages of budgeting to a business
Just like your household, a business has debts and expenses they are responsible for. In an effort to make sure the funds exist to cover these expenses, businesses need to put together a budget.
Some of the common expenses that a business may have include:
- Rent or mortgage
- Utilities
- Telephone
- Insurance
- Advertising
- Materials for product production
- Payroll
- Taxes
Budgeting makes it possible for a business to plan into the future, attract investors, set sales goals, obtain financing. Businesses also need a properly prepared budget to set goals and to answer questions of existing investors or board members. Comparing actual expenditures to a budgeted amount is helpful to notice things like an increase in the cost of electricity or a mistake in the invoice from your advertising agency!
The budget can be seen as a benchmark document, to help staff define goals and stay within the parameters of the budget. Even the smallest businesses should put together a budget! Watching income and expenses can help managers notice small changes and fluctuations before they become problems.
The process of budgeting helps managers learn to allocate resources effectively, and in larger companies, the budget can put together different components of the business into one document. This may show areas where bottlenecks might occur in spending, again, before this becomes a problem.
Budgets are a big deal, and not a task to put off. If you are a manager, chances are you will be asked to help prepare a budget, or run a department based on a budget. Whatever your role is, a budget will most likely be part of your job.
Practice Questions