Budgeting Overview

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What is budgeting?

Mei Po's budget in a Chinese envelope

A budget is the financial blueprint or action plan for an organization. It translates strategic plans into measurable expenditures and anticipated returns over a certain period of time.

Budgeting is the process of creating and fine-tuning budgets. Budgeting activities include:

  • Forecasting future business results, such as sales volume, revenues, capital investments, and expenses
  • Reconciling those forecasts to organizational goals and financial constraints
  • Obtaining organizational support for the proposed budget
  • Managing subsequent business activities to achieve budgeted results

If you have profit and loss responsibility, the financial results of your division or business unit versus the budget may be a key factor in evaluating your job performance, and may also be tied to your compensation.

An understanding of the basics of budgeting and the budget process is, therefore, essential to creating realistic budgets that will later serve as performance benchmarks. Moreover, if you are skilled at "selling the budget" within your organization and negotiating compromises during the budgeting process, you will be more likely to see your budget requests met.

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