Budgets ‘Budgets are financial target for the future covering income and expenditure over a period of time’. “a budget is a detailed financial plan for a future period of time”

Features of a budget Usually expressed in numbers/pounds sterling Usually expressed in numbers/pounds sterling Time constraint – prepared over a period of time Time constraint – prepared over a period of time Must be seen to be achievable - SMART Must be seen to be achievable - SMART

Types of budget Income budget – the revenue budget for the whole business, division or department Income budget – the revenue budget for the whole business, division or department Also known as the revenue or sales budget. Also known as the revenue or sales budget. Expenditure budget – a fixed or planned expenditure of a business, division or department over a period of time. Expenditure budget – a fixed or planned expenditure of a business, division or department over a period of time. Profit budget – the planned or target profit of the business over a given time period Profit budget – the planned or target profit of the business over a given time period Delegated budgets – managers, departments are given some control in the setting and spending of budgets Delegated budgets – managers, departments are given some control in the setting and spending of budgets

Procedures in setting budgets Set clear objectives Set clear objectives Carry out market research e.g. to gather information on sales and market prices Carry out market research e.g. to gather information on sales and market prices Complete sales/income budget Complete sales/income budget Construct the expenditure budget Construct the expenditure budget Establish a profit budget based on revenue and expenditure budgets Establish a profit budget based on revenue and expenditure budgets

Structure of a Budget Income budget - Sales revenue £50,000 Expenditure budget – Purchasewages£10,000£20,000 Profit/loss budget £20,000

Purposes of Budgeting Can be a good motivator if expressed as targets Can be a good motivator if expressed as targets Use for monitoring and control – avoid the business overspending Use for monitoring and control – avoid the business overspending Use to gain financial support from investors Use to gain financial support from investors encourages delegation and responsibility thereby motivation encourages delegation and responsibility thereby motivation Can be used to assess and evaluate different course of action Can be used to assess and evaluate different course of action

Problems of setting budgets Budgets set ‘top-down’ may be unrealistic and de-motivating Budgets set ‘top-down’ may be unrealistic and de-motivating Budgets that are fixed and rigid may damage a business long term reputation Budgets that are fixed and rigid may damage a business long term reputation Setting a budget can be time consuming Setting a budget can be time consuming Budgets are subject to unforeseen changes outside the control of the business Budgets are subject to unforeseen changes outside the control of the business Budgets that are too easy will not be motivating Budgets that are too easy will not be motivating Outcome of a budget is depended on the quality of data/information used Outcome of a budget is depended on the quality of data/information used