Budgets
When you prepare a budget, you are predicting the financial state of
your business. For example, you could prepare a budget that predicts
how much you intend to spend and earn over the next financial year.
Having a budget means that, as the year progresses, you can track
projected data against actual data and take corrective action if things
are not going according to plan.
You can also use budgets to plan for future goals. For example, you may
want to undertake a new business venture in the coming year. By
creating a budget, you can work out the amount of money you will
need for the venture, where this money will come from, and the impact
that the venture will have on other aspects of your business.
What do I need to budget?
You can enter budgets for individual
detail accounts. The accounts that require a budget will vary according
to your business. Most people prepare budgets for Profit and Loss
accounts such as Income, Cost of Sales and Expenses accounts, and
Balance Sheet accounts for specific assets and liabilities. To decide on
the accounts that will require a budget, consider what changes you
anticipate in your business and the financial impacts these changes will
have. For example, you may be considering taking out a new loan
(which will affect your Bank Loans account).
What period can I budget for? You can create a budget for the current financial year and the next financial year.
Reviewing your budget
You can review your budgets periodically to
track your financial progress and see if it is going to plan. A slight
variation from the budget is normal. Large variations, on the other
hand, may need investigation. For example, if you have a large increase
in accounts receivable, it may indicate that your customers are taking a
longer time than expected to pay your account.
You can compare your budgeted amount with actual account balances
by viewing the Budget Analysis reports for Balance Sheet and Profit and
Loss accounts.
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