In my opinion, and I can back it up if needed, having a budget is crucial for business success. It helps greatly in managing the capital invested and seeing where it goes. For instance, if you are in need of merchant services but want to keep an eye on how much you spend on them, you might want to check out the pros & cons of cheap merchant services to see which would be the best route to go down so you are mindful of your budget every step of the way. You can work on increasing the profits and using your money more efficiently when you budget. All these goals are achieved with different types of budgets.
Type 1: Master Budget
This type of budget consists of smaller individual budgets that are put together to have an overall picture of the wellbeing of the business. It includes information about assets, profit, spending, sales, etc. showing the progression of these processes and the financial tendencies of the company. If there is a current problem (there must be income from sales but you don’t see it), the master budget may show the reason to you.
Type 2: Operating Budget
An operating budget helps analyze the effectiveness of your business over a certain period of time. It’s important to make it as accurate as possible, that’s why managers include many factors in it (sales, prices, labor and material expenses, production, etc.). To elaborate, take the example of the sales process. Most successful sales departments make use of sales prospecting tools (look these up) to cut down repetitive tasks and close more deals. Such software and tools become part of the operating budget. The operating budget will show you the deeper reasons for a problem or sudden progress, and it’s most often done on a monthly basis.
Type 3: Cash Flow Budget
A cash flow budget is crucial for getting a handle on expenses and determining if money is being used wisely in a business. The budget maps out where cash comes from and where it’s spent. For example, utilities costs like water and electricity can be examined in the budget to spot any overspending. If water bills are running high compared to projections, it may be wise to call in a water supply consultancy service to audit usage and identify potential savings. Similarly, if electricity bills seem inflated, an energy audit consultancy could be brought in to evaluate and reduce costs. Essentially, a cash flow budget incorporates payable and receivable accounts to assess if enough cash is available presently to take on a new venture. So before embarking on a major new project, constructing a detailed cash flow budget helps evaluate not only overall finances but also specifics like utilities outlays. This ensures all bases are covered from both a big picture and granular level when planning something major and new for the business.
Type 4: Financial Budget
A financial budget focuses on comparing expense and revenue, helping create the best strategy for the right asset, sale, income, and spending management. It gives the managers of a company a comprehensive picture of the heartbeat of the business. This helps determine the future goals to improve the situation or keep it stable.
Type 5: Static Budget
A static budget can’t be altered, no matter whether the sales are increasing or decreasing. Such budgets are usually created once a year to make sure there’s always an unchanging amount of goods in the warehouse, for example.
I know these might sound the same to you at first, but they cover slightly different spheres of financial wellbeing for a business. Managers choose one or several depending on their goals and needs, as well as the information they want to acquire.