Topic 1: WHY IS BUDGETING IMPORTANT IN BUSINESS?

5 REASONS
by Catherine Cote

Business Budgeting- It is a process where financial documents that estimate income and
expenses are prepared and overseen in a specific period.

Managers, business owners and executives are individuals whose key skill is to ensure that the
organization has the resources to achieve goals.

Budgets from previous periods can be compared to the company’s actual financial allocation
and performance, giving an idea of how close predictions were to actual spend.

Types of Budgeting

1. Zero-based budgeting: sets each item at zero dollars at the start of periods before
reallocating

2. Static budgeting or incremental-based budgeting: which uses historical data to add or

subtract a percentage from the previous period to create the upcoming period’s budget

3. Performance-based budgeting: which emphasizes the cash flow per unit of product or
service

4. Activity-based budgeting: starts with the company’s goals and works backward to
determine the cost of attaining them

5. Value proposition budgeting: assumes no line item should be included in the budget
unless it directly provides value to the organization.

Importance of Budgeting

1. It Ensures Resource Availability: By planning financials in advance, you can determine

which teams and initiatives require more resources and areas where you can cut back.
2. It Can Help Set and Report on Internal Goals: Financial goals should be attainable
enough that you count on them to inform the rest of your budget allocations.
3. It Helps Prioritize Projects: The value proposition budgeting method forces you to
determine and explain each line item's value to your organization, which can be useful for
prioritizing tasks and larger initiatives.
4. It Can Lead to Financing Opportunities: Providing documents for previous periods
with budgeted and actual spend can show your ability to handle a company’s finances,
allocate funds, and pivot when appropriate. Some investors may ask for your current
budget to see your predicted performance and priorities based on it.
5. It Provides a Pivotable Plan: A budget is a financial roadmap for the upcoming period;
if all goes according to plan, it shows how much should be earned and spent on specific
items.

Reference: Cote, C. (2022, July 6). Why Is Budgeting Important in Business? 5 Reasons. Harvard Business School
Online. https://online.hbs.edu/blog/post/importance-of-budgeting-in-business

Topic 2: Budget Concept and Types

by 3G School of Entrepreneurship
Budgeting is a financial plan for the future concerning the revenues and costs of a business.

Budgetary Control is a process where financial control is exercised within an organization.

In the modern terms: Budget is a plan to spend less than you make each month.

Concept of Budgeting

Budget is a financial plan for future activities. It is a plan for saving, borrowing and spending.

The Master Budget: The combination of all the budgets of a company is referred to as the
master budget. This help the company to decide of which action should they undertake.

Managers can also use budget as they saw that the projects costs can be compare to what will be
the budget and thus be able to control cost.

Main Characteristics of Costs

● Prepared in advance and cover a long-term strategy of the organization.

Advantages of Budget:
● Give more room for error in life
● When you budget your financial resources, you are always in better financial position.
● Needed for spending situation
● Able to locate the necessary expenditures.

Budgetary Control: an exercise of control using budget. The budget shall provide necessary
information to enable or authorize the policy making body in access properly the project
proposals.

Process of Budgetary Control

● Preparation of Budget
● Comparison
● Performance of Budgetary
● Performance and Revision of budget

It is better for a company to establush a budget controller aside from the CEO. The budget
committee shall compose of heads of various department and the budget controll as the
chairman.

Budget Procedure

● Budget Preparation
● Budget Authorization
● Budget Review
● Budget Execution
● Budget Accountabilit

Budget make forecast: which is to estimate the future financial condition.

Advantage of Budgetary Control

● This system helps in fixing goals for the firm as a whole and concert the efforts made to
create achievement.
● Maximization of profit
 ● Coordination

Sales Budget: Key stone for planning and control of operation in a business.

Production Budget: It is the forecast of production.

Material Budget: Prepared using historical cost as standard basis.

Purchase Budget: give information about the purchases of materials to be made.

Direct Labor Budget: Tell how much is the estimated direct labor requirement to carry out the
output.

Cash Budget: The firms expected cash inflow and outflow.

Fixed Budget: Constant budget that is to remain unchanged irrespective of the level of activity.

Master Budget Advantages

● Allow manager to reevaluate their plans

Disadvantages
● Lack of participation from subordinates, misleading information and difficulty to acquire
accurate information.

Reference: BUDGET CONCEPT AND TYPES. (n.d.). Www.youtube.com. https://youtu.be/mkWQVJzbyRs

Topic 3: Difference Between Budgeting and Financial Planning (Budgeting vs Financial

Planning)
by Darlington Academy

Budgeting vs. Financial Planning

Budgeting
● Budgeting limits the overspending trap.
● Take care of short-term goals and situations

Financial Planning
● Roadmap to financial future
● Not limited to present
● Can be affected by one's situation like loss of job or having sickness
● Requires constant learnings in long-term goals

How do they work together in managing finances?

1. Both, Budgeting and Financial planning aims for an individual to live within their means-
2. Cut out unnecessary expenses

How to make a budget plan?

Step 1: Determine vital expenses (separate and the needs and wants)
Step 2: Allocate financial resources
Step 3: Remember that budgeting is an actuve process, for it to be a success expenditures have to
be tracked.
Step 4: Make revisions if necessary and in accordance to what you have
Reference: Difference Between Budgeting and Financial Planning (Budgeting vs Financial Planning). (n.d.).
Www.youtube.com. Retrieved February 11, 2024, from https://youtu.be/7mielvOEylo?si=eOtuWc6nfdCRBb3I

Topic 4: How to Prepare a Sales Budget

by Steven Force

Problem:

Myers Company sells their product for $20 each. In 2020, expect to sell 4,000 units in Quarter 1, in each subsequent
quarter, sales increase by 500 units with no change in the unit selling price.

Prepare a sales budget for the year, by quarter.

Myers Company

Sales Budget

For the year Ending, December 31, 2020

Quarter

1 2 3 4 Year

Expected 4,000 4,500 5,000 5,500 19,000

Unit Sales

Unit Selling $20 $20 $20 $20 $20

Price

Total Sales $80,000 $90,000 $100,000 $110,000 $380,000

Reference: How to Prepare a Sales Budget. (n.d.). Www.youtube.com. Retrieved February 11, 2024, from
https://youtu.be/DX3rrlfggAQ?si=ThB4VTlgOj7AG1oc