7.2 Budget

	A budget is a forecast of revenue, expenditure and profit. Majority of budgets are amended yearly.
	In business, a budget is a forecast or plan of an organization's revenues and/or expenses for a period of time into the future.
	Budgets are used in many organizations:

		To maintain funding requirements (by describing how funds will be used)
		To control expenses, to make certain that accessible funds are used according to the made arrangements and that spending resides inside the predetermined limits

7.2.1 What does a budget accomplish?

There are two (frequently have common characteristics) reasons for creating a budget.

		To convince prospective investors
		To sketch the business finances

			How much money is in hand?
			Utilization plan of the money

7.2 Budget

			How much returns should be generated to pull off the marked profit?
			Is the business plan practical or does it requires fine-tuning?

7.2.2 The Budgeting Concept

	In its simplest form a budget is just a list of spending items and/or incoming revenue items, with a budgeted figure for each item.
	As time passes, the actual spending or revenue may be entered into the budget to compare with the budgeted figure.
	The difference between the two figures is called a variance.
	A company's quarterly operating budget, for instance, may forecast spending for employee training.
	The annual training spending figure may be set first but for management and control purposes, this may be broken down further into monthly or quarterly figures.
	In its simplest structure a budget is just a listing of expenditure things and/or inward revenue items, with a budgeted figure for every item.
	As time passes, the authentic spending or revenue may be entered into the budget to weigh against with the budgeted figure.

7.2 Budget

	The distinction between the two figures is termed as a variance.
	Expenses

		Expenses are termed as the monetary costs that a business acquires during its operations to produce revenues.
		In order to make the most of profits, businesses must endeavour to trim down expenses.
		For the reason that expenses are such a vital pointer of a business's procedure, there are definite accounting rules on expense detection and acknowledgement.

			Fixed costs fixed expenses stay the same in spite of sales volume. They comprise rent, loan repayments, and insurance.
			Semi-variable costs are costs with fixed and variable components, such as telephone, salaries and wages. The fixed constituent is the least cost of supplying goods or services, whereas the variable constituent changes depending on sales volumes.
			Variable costs increase or decrease in procession with sales, and comprise costs of materials, circulation and other expenses.
			Start-up costs: Expenses that will be incurred before a new business is able to unbolt its doors or commence production and generate revenues. Start-up costs comprise fees; acquire equipment, living expenses while getting a business ready for operation, and so forth.

7.2 Budget

Revenue

		Revenue is the sum of money that a business in reality obtains during an explicit stage, together with mark downs and subtraction for returned stock.
		It is the "top line" or "gross income" figure from which costs are deducted to establish net income.
		Revenue is computed by multiplying the cost at which merchandises or services are vended by the amount of the units or quantity sold.
		If the entrepreneur uses the requisite profits system sketched above, it will generate an overall figure for required revenue. This is an objective to a certain extent than a forecast.
		The entrepreneur needs to split it down to come to a decision on

			How many of what needs to be sold?
			What to charge?
			Whether the targets are pragmatic?

		It has the added advantage of generating very clear monthly sales targets.
		Once the company operates for a few years, revenue will be envisaged in a further conformist way, based on past performance.

7.2 Budget

7.2.3 Monitoring the budget

	Once you have set up the budget, compare it to the actual figures every month, to look for differences and establish why they are there.
	Adjust expenditure or sales efforts as you go along, to bring the next group of numbers in line with the budget.