10.1. Exploring the Reasons for Budgeting

NOTE

The financial statements included in the financial reports of a business are prepared after the fact; they're based on transactions that have already taken place. (I explain business financial statements in Chapters 4, 5, and 6.) Budgeted financial statements, on the other hand, are prepared before the fact and reflect future transactions that are expected to take place based on the business's strategy and financial goals. Note: Budgeted financial statements are not shared outside the business; they are strictly for internal management use.

Business budgeting requires setting specific goals and developing the detailed plans necessary to achieve them. Business budgeting should be built on realistic forecasts for the coming period. A business budget is an integrated plan of action — not simply a few trend lines on a financial chart. Budgeting is much more than slap-dashing together a few figures. A budget is an integrated financial plan put down on paper — or, more likely these days, entered in computer spreadsheets. (Many budgeting computer programs are on the market today; ask your CPA or other financial consultant which one he or she thinks is best for your business.)

Business managers don't just look out the window and come up with budget numbers. Budgeting is not pie-in-the-sky wishful thinking. Business budgeting — to have practical ...

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