What is a master budget?

master budget is the main budget of your company , that is, the culmination of a whole planning process and, therefore, includes all the areas of your business , such as sales, production, purchases, etc., and, for that is called a teacher.

This budget that includes all expenses is made up of two other budgets, which are smaller, the operating budget and the financial budget .

The operating budget is made up of other smaller budgets. The first is the sales budget and it is where you anticipate how much you expect to sell. Based on this, you will know how much you should produce and how much it will cost you to do it. You will then have to see what raw material you need, how much labor you will use, what your indirect production costs will be and, of course, how much it will cost you.

Once you know how much raw material you need, you can plan and budget your purchases so that you are not in a time constraint and can get good prices.

In the end, what you will be able to define with your operating budget is what your profit will be.

The financial budget is not that complicated. In it you will budget the cash you will have and the investments you can make in the short term, to move your capital and make it profitable. When you finish it, you will know what the financial situation of your company will be, that is, if the times of skinny or fat cows will come.

by Abdullah Sam
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