An estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals. One of the most important administrative tools, a budget serves also as a plan of action for achieving quantified objectives, standard for measuring performance, and device for coping with foreseeable adverse situations.Typically used to describe government budgeting, the four-phase budget cycle is also applicable to companies that operate based on a budget. Each step of the process is, in and of itself, valuable. When you look at preparation, approval, execution, and then evaluation as separate steps, your budget becomes a living document that can better help you achieve your company's aims.
1) Preparing the Budget
The first step of the budget process is to actually generate the budget. Done right, this process starts with careful thought at the ground level as to what is needed and what new initiatives can be started. At the same time, leadership and vision from the top offers some guidance as to what the departments can expect. Once each department makes its spending decisions, their requests are sent to the decision makers for inclusion in, or exclusion from, the final document.
2) Approving the Budget
While the political budgeting process is a bit messy, one of its underlying principles is very meaningful for businesses. Budgets aren't approved on a yes or no basis. Instead, they're the subject of further debate. While, at times, the political process can distort budgetary priorities, businesses don't have to fall prey to that problem. Instead, the approval process can be an opportunity to take another view of how your company is spending its funds.
3) Executing the Budget
Once a budget is passed, it isn't done. Chief executives can, if they choose, impound funds to prevent money from being wastefully spent. On the other hand, departments can request reprogramming to give them additional funds if a need arises. Most of the time, though, the money gets spent in accordance with the budget. A good budget isn't a limitation on what departments can spend. It's a financial embodiment of your company's strategy and tactics for the year.
4) Evaluating the Budget
While the audit and evaluation process was once focused on ensuring that money was being spent in accordance with the law and and in a non-corrupt fashion, this phase of the budget has grown in scope. Now, auditing and evaluating also focuses on how effectively the money is being spent. It's not enough to see who used their money and who didn't. What really matters in government and in business is where the money generated a return.
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