What is a budget for?

The term budget is handled on a daily basis, not only in companies, but also in households or any type of organism that has an economic activity. The simplest answer to the question of what is a budget for , is that it is a tool designed to know what income and what expenses we have. Obviously, for a company, budgeting is key to designing a future project and making the best financial decisions.

So, if we want to be more professional when talking about budgets, we would have to move in the concept of considering it an action plan that is aimed at achieving a goal, which must be met within a specific period of time and handling certain circumstances. . It is expressed in terms and financial values.

 

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Budget objectives

One of the keys to enjoying the benefits of having a good budget is to be clear about what it is for. The purpose of the budget in the mind of an entrepreneur or entrepreneur must be broader than knowing the mere difference between what is entered and what is spent.

The budget must be conceived as the strategy to organize the money of our company and optimize its returns, under two premises, the exhaustive control of the accounts and the ability to react to correct or improve any failure or gap in financial terms. In summary, the budget objectives analyzed with a higher business perspective are:

  • Future projection. Carry out a detailed internal analysis, to discriminate our possibilities and plan their best use. Without forgetting an external analysis, of the environment in which our business activity moves, covering economic, political or local aspects … taking into account everything that may affect us.
  • Distribution of resources among the different areas of the company. It is necessary to include a quantification of the resources available and those that are needed. That is, the needs of all departments: production, distribution, sales, purchases, marketing, among others. The productivity and viability of the products or services will be valued , for which the detection of hidden costs is key.
  • Make visible the “bottlenecks”. With this colloquial term we mean that all the information studied in the two previous points will lead us to know the processes in which there are limitations or the activity is paralyzed, the “bottlenecks” of any area of ​​our company. In this way it is easier to put concrete corrective measures to that lack of fluidity.
  • Effectively coordinate all departments. One of the mistakes that a good budget most often reveals is the existence of duplications between activities of the same company, with the consequent expense of doing the same thing several times. The other, closely linked to this, is the lack of internal communication , so that there are reports that remain unread or requests that are not resolved due to ignorance. The budget must bring these deficiencies to light and contemplate ways to remedy them.
  • Take advantage of the value of the comparison. Sometimes the businessman, especially the one who runs an SME, lives absorbed in his reality, in a kind of constant loop over himself, without establishing real references that help quantify economic deviations. Nothing better than a budget to have an accurate comparative model that also adjusts forecasts and imposes corrective measures.
  • Guarantee everyone’s commitment to the business project. Thanks to the elaboration of a complete budget that clarifies where we want the company to go, the levels of demand expected and the evaluation systems, each member of the company feels more integrated and with data to contribute their grain of sand.

Surely when asking yourself what a budget is for , you did not imagine the powerful tool you had in your hands.

 

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