Page 11 - Book2E

The budget of a corporation or other business is compiled each year. A completed budget usually requires a lot of time and effort and can be seen as a financial plan for the new business year. While traditionally the finance department of a company creates the company’s budget, computer software enables hundreds or even thousands of people in a company’s various departments (sales,
marketing, operations, human resources, information technology, etc.) to contrib- ute their expected revenues and expenses to the final budget.
Nearly all large businesses today refore-
cast their original budgets each quarter
(three months) of the year. As the months
pass, the actual income achieved and expenses that must be paid can be compared to the budget and forecasts that were made at the beginning of the year. If the actual financial results achieved throughout the year end up being close to the budget, this demonstrates that the company understands its business and has been successful leading it according to plan. On the other hand, if the actual financial performance of the company is in stark contrast to the budget, this sends an ‘out-of-con- trol’ message to industry analysts and investors, and the share price of the company’s stock could lower as a result.
What Does Your Budget Say about Your Financial Management Ability?
Just as with a successful company, living within a budget and having money left over each month (positive cash flow) to save for emer- gencies or major purchases demonstrates that you’re in control of your finances. If you come up short each month, with your expenses exceeding your income (negative cash flow), it’s a strong signal you need to sharpen your focus on sticking to your budget.
What is a Budget?
The waste of money cures itself, for soon there is no more to waste.
—M.W. Harrison
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