What is a budget?

A budget is a tool for converting plans into reality.

It covers the process of

• defining objectives;
• forecasting expectations of sales, profits, and expenses of every sort;
• deciding what actions will best help the company achieve these targets;
• determining how much money will be needed to support these actions; and,
• finally, providing a way to monitor whether the actions chosen are the most appropriate at the current time, or whether they need to be modified in some way.,

FEATURES OF A BUDGET

A budget should include the following components to be effective:

1. Clearly defined objectives, both short- and long-term.
2. Estimates of revenue amounts.
3. An analysis of revenue payments:  how far do they lag behind payment of expenses?
4. Estimates of expense amounts and timing of expense payments.
5. A list of ongoing direct and indirect costs.
6. A cash budget to predict cash flow over time.
7. Procedures to monitor the progress of the budget.