Question

Discuss the stages of budget preparation.
What are the objectives of a budget?

Answer 1

The stages of budget preparation are :

Preparation of a business plan : the first step towards making a budget is preparation of a business plan. In the absence of a sound business plan , no budget can be successful.

The next step is to determine the funding : in order to make a sound and sustainable budget , a business must know how much money is available at their disposal. Estimating the required funds helps a business to priotiroze the spending needs of the business and also also puts constrains on the business as to only make necessary investments.

Allocate funds towards needs : first and foremost funds should be kept aside for all the operational expenses ,leaving the fixed expenses like rent and electricity as it is the necessary expenses. After this, we may allocate funds towards the new ideas and experimentations. Lastly, if any money is left then it is allocate for charitable works.

External factors: the budget should be adjsuted for external factors as well ,like any natural disasters it any change in government policies. If funds are allocated for these unforseen events then it would not handicap the business in case the event actually takes place.

The objective of a budget is to provide a realistic picture of the income and expenses of the business, this providing an estimate of the financial position of the business at the end of the financial period. It provides a plan of action for the business. It also helps in guiding the management for forecasting and decision making. A budget helps in comparing the performance and results of a business ,it provides guidance on how to carry forward the business operations.