Budgeting is an efficient forecasting method that can lead companies to achieve their desired goals. It helps firms monitor corporate income and expenses, through an assessment of historical costs, assets value, and results achieved by the company in previous years.
This document should be prepared every year to realise a corporate plan highlighting economic figures that the company intends to achieve during the year or in the next future.
Budgeting tools may vary according to the respective business areas and operational fields. For instance, it is possible to have a sales budget that covers revenue by product and offers an estimated quantity of goods expected to be sold. It also highlights the amount sold and the revenue expected from the company.
The example showed above is only one part of the budgeting analysis. For a complete budget analysis, we need to consider the budgets for different departments such as Financial Budget, Marketing Budget, Cash Flow Budget and so on. In addition to these types of forecasting tools, there are budgets, which relates to employee overhead costs and financial burdens that constitute the most useful tools for business as well as the most difficult to assess, as managers need to take into account the costs and financial charges not immediately linked to the company's administration.
These instruments are useful to compare previous year’s performance and to build, evaluate and develop from them. Therefore, these standards are critical to the correct operational functioning and the achievement of the business objectives.