The budget is a financial tool which consists of planning the expenses of a project or activity. This estimate is made taking into account a certain period of time. The main purpose of the budget is to influence the decision processes of the company or person carrying out the project.
It can be said that it is a work plan expressed from a quantitative point of view. It is impossible to determine the stages or steps of work if we do not know the cost of each of them.
Plan expenses requires a certain degree of creativity and financial knowledge for the project to be carried out satisfactorily. A responsible and intelligent allocation of resources must be made to each of the plans and processes. The budget must be set up in such a way that the investment made favors the fulfillment of the goal set. What should I consider when creating a budget?
- Monthly personal or business income. In order to know how much to invest, you have to know the capital you have. The analysis of assets and liabilities provides an overview of the degree of financial action and the chances of success.
- The fixed and variable expenses involved in the execution of the project. You must take into account wages, per diem and service payments.
- Possible contingencies. A good budget is one that takes into account any unexpected expenses or situations. The correct planning allows to face these eventualities without affecting the course of the project.
- How many resources do you hope to earn. Knowing your expectations is key to determining how large your budget should be.
- Define cash flow, which is the difference between personal or business income and expenses.
- Set clear and achievable goals. The more feasible or achievable a project is, the greater the budget’s chance of success.
What is the budget to achieve?
- Obtain General information, both of the project and of the financial activity of the person or company that promotes it. In this way, you can determine how prepared you are to face the potential expenses and financial challenges ahead.
- Plan what activities are going to be carried out and what resources will be invested in its implementation. In addition, be clear about the purpose of each of them in order to avoid unnecessary investments.
- Get the different areas of the company involved in the execution of the project. Each agency provides relevant information that helps estimate likely costs, earnings, and risks.
- Assign an objective to each area or department of the company and continuously evaluate its fulfillment.
- Propose a period of time in which each of the activities will be carried out.
- Check each of the key activities of the company to prevent them from straying from the main objective.
- Predict future financial statements.
What are the benefits of budgeting?
- Provide a comprehensive vision of the operations and probable results allowing to take opportune and correct decisions.
- It facilitates the performance of periodic evaluations of the performance of the administration and financial team.
- It allows assigning functions and responsibilities to each of the individuals and departments involved in the execution of the project.
- It helps to identify the lack of funds in advance to facilitate the loan application at the right time.
- It is the tool that allows you to translate the company’s plans into concrete actions by put the money in motion.
- It facilitates the increase of the cost-benefit ratio by analyzing in depth each expense in which it is intended to be incurred.
- It offers a study of the different investment options and helps to choose the expenses more intelligently.
- Provides a financial image of the company or project giving it greater seriousness and reliability.
- Let the financial information is accessible to all users or departments involved in the project. For example, union organizations can find out what the money is being invested in and what the expectations are. In this way, greater trust is created within the work group and joint work is promoted.
- It provides potential investors with a detailed picture of the project, generating confidence and projecting an image of probable success.