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Setting Budgets
- Budget = A target amount of money
set by a business in a specific period of
time
- Income Budget = A target amount of money to be recieved
from sales in a given period of time; this can be set for the
business as a whole or specific activity e.g. each store or product
- May be
translated
into individual
sales targets
for staff
- Informed by market
research and sales
forecasts
- Informs cash inflows in
the cash flow forecast
- May be
translated
into individual
sales targets
for staff
- Expenditure Budget = A target amount of
money a business is permitted to spend
in a given period of time; this can be set
for specific aspects of business activity
e.g. marketing, materials or wages
- A seperate expenditure budget may
be set for running costs and start up
costs
- Informs cash outflows in the cash
flow forecast
- Allows for monitoring of underspending
as well as overspending
- A seperate expenditure budget may
be set for running costs and start up
costs
- Profit Budget = A target amount of profit to be achieved by
a business in a specific period of time, calculated based on
income budget minus the expenditure budget
- May be set for the business as a whole or
for individual departments, products or
branches
- Within a business plan will be used to
highlight the potential and feasibility of
the business
- May be set for the business as a whole or
for individual departments, products or
branches
- Reasons for
setting a budget
include:
- Important
part of a
business
plan
- Motivates
to meet
targets
- Helps avoid overspending
- Encourages
efficiency
- Shares responsibility
- Important
part of a
business
plan
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